Question

If a firm is making an economic profit of zero, should it go out of business?

Answer 1

Ans)

No, the firm should not go out of business.This is because economic profit consists of explicit as well as implicit costs.Thus, economic profit is always less than the accounting profit of the firm(this is because the accounting profit consists of only explicit costs).Implicit costs are actually the opportunity costs of production.This means that the firm is also taking the measurement of the cost of the next best alternative that he has given up in order pursue this business.