Question

if a firm is earning positive economic profit, it must be the case that:if a firm is earning positive economic profit, it must be the case that:

Answer 1

Economic Profit = Total Revenue - Total Costs

= Quantity * Price - Quantity * Average cost

= Q(P- AC)

Since economic profit is positive, it can be mentioned that P- AC is positive which tells us that P>AC or price is greater than Average cost.

What you mean by economic profit?

• The difference between the money made from selling an output and the price of all the inputs plus any opportunity costs is what is known as an economic profit or loss.
• Economic profit is determined by subtracting opportunity costs and explicit costs from earned income.

What is the role of economic profit?

• Economic profit is important since it makes it possible to evaluate the profitability and financial performance of a company.
• It demonstrates a company's ability to pay its bills and generate profit for its investors. By this standard, brands are only deemed successful when they generate income for all parties.

Learn more about economic profit

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