Positive economic profits exist for a firm in the long run if price is aboveQuestion 5Select one:a.long-run variable cost.b.long-run average cost.c.long-run marginal cost.d.long-run total cost.
Question
Positive economic profits exist for a firm in the long run if price is aboveQuestion 5Select one:a.long-run variable cost.b.long-run average cost.c.long-run marginal cost.d.long-run total cost.
Solution
Positive economic profits exist for a firm in the long run if price is above the long-run average cost. So, the correct answer is b. long-run average cost.
Here's why:
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Economic profit is calculated as total revenue minus total cost, including both explicit and implicit costs.
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In the long run, all costs are variable, and the firm will adjust all its inputs to make sure it's as efficient as possible.
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If the price is above the long-run average cost, it means the firm is receiving more revenue per unit than what it costs to produce that unit.
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Therefore, after subtracting the total cost from the total revenue, the firm will still have a positive amount left over, which is the economic profit.
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If the price was only above the variable, marginal, or total cost, it wouldn't necessarily mean the firm is making an economic profit, because those costs don't take into account all the implicit costs like the opportunity cost of capital.
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