--%>
Assignment Help - homework help

Normal profit

Normal profit signifies zero economic profit. Explain why?

E

Expert

Verified

Answer: Assume that the existing firms are earning over normal profits. Attracted by the positive gains, the new firms enter in industry. The market supply rises and the price comes down. New firms carry on entering and the price persists to fall till economic profits are decreased to zero.

In condition of losses, firms begin leaving the industry, supply downs and prices begins going up and all this carry on till losses are wiped out. Remaining firms in industry then once again earn only normal profits or zero profit.

   Related Questions in Microeconomics

  • Q : Interest rate risk premium What is

    What is Interest rate risk premium? Briefly explain it.

    		•
  • Q : Price elasticities for market demand

    Of the given price elasticities [ed] for market demand curves, there the one which is absolutely implausible by the vantage of standard economic theory would be one for that, across all conceivable ranges of prices: (1) ed= 0 and the

    		•
  • Q : Define factor market Factor market : It

    Factor market: It comprises of factors of production namely land, labor, capital and associations.

    		•
  • Q : Exit from a competitive industry Exit

    Exit from a competitive industry will carry on till economic: (w) losses are driven to zero. (x) profits precisely offset accounting losses. (y) profit exceeds accounting profit. (z) resources have minimum incomes.

  • Q : Lower market price to cover average

    When the market price is lower to cover average total costs, in that case a profit-maximizing firm will: (i) shut down instantly. (ii) continue to operate where P = MC when P > AVC. (iii) adopt newer technology. (i

    		•
  • Q : Purchasing power of Income Effects

    Whenever the price increases for a good that you enjoy extremely and purchase regularly: (i) The purchasing power of your income is reduced. (2) You adjust more rapidly than when the good was insignificant to you. (3) Your substitution effect is over-powered by an inc

    		•
  • Q : Competitive market Select the right

    Select the right answer of the question. A competitive market will: A) achieve an equilibrium price. B) produce shortages. C) produce surpluses. D) create disorder.

    		•
  • Q : Shifting of labor demand for Labor The

    The labor demand will shift due to the modifications in all of the given except: (1) Prices of other resources. (2) Prices of the output. (3) MPP (4) Salaries. Can someone please help me in finding out the accurate answer from the

    		•
  • Q : Justified investment by paying income

    When the price of each of the given assets is $10,000 and the interest rate is 10%, then investment is most justified for: (1) a perpetuity paying $900 annually. (2) a machine with a 3 year life which can be leased to an outsider for $10 per day. (3) an income stream

    		•
  • Q : Quantity of good demanded A Rise in the

    A Rise in the quantity of frozen vegetarian lasagna demanded would be much probable to outcome from raises in the: (i) Cost of raw vegetables. (ii) Wages paid workers in lasagna developed plants. (iii) Number of people who perform strict vegetarianism. (iv) Costs of o

    		•