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QUESTION: When a firm earns economic profit: 1. total revenue has been maximized. 2. other firms...

QUESTION: When a firm earns economic profit:

1. total revenue has been maximized.

2. other firms enter the market.

3. market share has be capitalized.

4. accounting profits are zero.

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Answer #1

When a firm earns economic profit it depends upon the type of market the firm is operating, whether the new firms will enter,total revenue has been maximized etc.. For example in a perfectly competitive market since there is free entry and exit of firms new firms can enter till all the firms will earn zero economic profit. Whereas in the other types of Markets like Monopoly, Monopolistic competition, etc. it depends upon the amount of the economic profit earned, whether it is maximizing total revenue or capitalizing market share.

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