Question

7) If a firm is making zero economic profit, will it remain in business? Explain. (5 points)

Answer 1

Answer : Firms face different profit levels at different times. If a firm makes zero economic profit then in short run time period the firm keeps going it's production level. But in long run time period the firm may stay in the market or may out from the market.

In competitive market many firms enter into the market which lead to make zero economic profit for firms. In short run time period the firm keeps it's continuous producing level but in long run time period if firm's revenue compensate the cost level then the firm remain in the market and produce it's products continuously and exactly opposit condition occurs in case of insufficient compensation level for the firm ,i.e., the firm stop it's production level and exit from the market.