Question

If a firm doesn't make an economic profit it will shut down. Do you agree or disagree. Explain.

Answer 1

If a firm operating in an economic profit it doesn't necessarily mean it will shut down.

As economic profit is different from accounting profit. In Economic profit, the economic cost is also taken into consideration in which it has intrinsic costs included such as opportunity cost.

If the economic cost is zero, that doesn't mean the firm is in a loss, it simply means that the person is at an equilibrium point in a perfectly competitive market. What happens in a perfectly competitive market is that the supply curve keeps itself shifting so that the equilibrium comes at the zero economic profit.

That also means that the supplier is utilizing the resources available in the best possible manner in the market where in economic cost opportunity cost are included.