Question

According to the text, economic profit serves as a beacon to entrepreneurs. This means A positive...

According to the text, economic profit serves as a beacon to entrepreneurs. This means

A positive economic profit sends a warning to investors not to invest more.

A negative economic profit sends a signal to investors that it is time to invest more.

A zero economic profit sends a warning to investors not to invest more.

A positive economic profit attracts resources while a negative economic profit sends resources away.

None of the above.

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Answer #1

It is true that economic profit serves as a beacon to entrepreneurs.

If a business is earning positive economic profit then this implies that not only business is able to recover its explicit and implicit cost but is also able to earn above that as well.

On the other hand, if a business is earning negative economic profit then this implies that business is not able to recover its total cost (sum of explicit and implicit cost).

Thus, positive economic profit indicates long-term viability of business and thus attract resources while negative economic profit indicates non-viability of business and thus sends resources away.

Hence, the correct answer is the option (4) [A positive economic profit attracts resources while a negative economic profit sends resources away].

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