Question

A zero economic profit means that the firm is earning a

• A. Normal profit
• B. Abnormal profit
• C. Below normal profit
• D. Only loss

Hint:

In economics, normal profit is included in cost. So, zero economic profit means the firm is earning normal profit.

Answer 1

The Correct Option is A

Concept: Economic profit is calculated after considering both explicit cost and implicit cost. Normal profit is included as part of cost in economics.

Step 1: Understanding economic profit.
Economic profit is: \[ \text{Economic Profit} = \text{Total Revenue} - \text{Total Economic Cost} \] Total economic cost includes explicit costs and implicit costs.

Step 2: Understanding zero economic profit.
If economic profit is zero, it means the firm is covering all its costs, including normal profit. \[ \text{Economic Profit} = 0 \] This does not mean the firm is making a loss. It means the firm is earning exactly normal profit.

Step 3: Eliminating wrong options.
Abnormal profit means economic profit is positive.
Below normal profit means the firm is not covering full economic cost.
Only loss is incorrect because zero economic profit does not mean loss. Therefore, zero economic profit means the firm earns normal profit.