Question

What does a positive profit indicate? What does a negative profit indicate? Explain what each means to the business and the consumer.

Answer 1

Positive profit means the firm earned a higher revenue than its total costs in the given period. A negative profit means the revenue of the firm was less than its total costs in the given period.

In the case of a positive profit, firms remain in the business as they are earning a net income which is higher than its costs. Firms can sustain in the market only when they can earn a positive profit rather than a negative profit.

When firms earn positive profit, they sustain in the market and consumers are able to meet their needs. When firms earn negative profit, they exit the market and consumer face lower choices in the market and a probable higher price.