Question

1.When Economic Profits = 0, then this means that:   

A) This means that all of the firms are operating at a loss. The best thing to do next would be to raise prices to cover the losses.

B) There is no motivation to leave the industry or for new firms to enter the industry.

C) Everyone run for the exit doors. Everyone in the industry is if they don’t get out of an industry like this.

D) None of the answers listed are correct.

2. Should non-profit firms need to be concerned with the MC=MR profit maximization

formula?   

A) Non-profit firms do not need to calculate this formula and it will not provide any useful information for them.      

B) This formula can be useful in helping the non-profit to at least breakeven.      

C) The MC=MR formula can only be used by for-profit firms.    

D) All of the statements above are false.

please help and explain, thank you

Answer 1

1. When economic profits are zero, there is a lack of motivation in the firms to leave the industry and lack of motivations for other firms to enter the industry. Thus, option B is correct.

2. MC=MR is the point where the profit is maximized. For profit firms use this formula to decide the output level. They do not produce beyond that level because it will turn into losses. However, the non-profit firms need not stop output level based on the information provided by the formula. Yet, this formula can provide useful insight on performance of the non-profit firm. Thus, option B is correct.