Normal profit occurs when

Question

BlackTom AI · Accepted Answer

Question restatement: Normal profit occurs when the firm’s situation is such that economic profit is zero, i.e., total revenues just cover all costs including opportunity costs.
Option a: 'the firm makes zero economic profit.' This aligns with the standard economic theory of normal profit, which is the point at which all explicit costs and implicit costs (opportunity costs) are covered, leaving no extra profit. It represents the break-even condition in economic terms.
Option b: 'the firm's revenues are less than the explicit costs and implicit costs.' If revenues are less than both explicit and implicit costs, the firm incurs a positive economic loss, not normal profit. This describes an unprofitable situation rather than normal profit.
Option c: 'the firm's revenues are the same as its explicit costs.' If revenues equal only explicit costs, but not implicit costs, economic profit would be negative because opportunity costs are not covered. Normal profit requires both explicit and implicit costs to be covered, so this is not correct.
Option d: 'the firm's revenues are greater than the explicit costs and implicit costs.' If revenues exceed both explicit and implicit costs, economic profit is positive, not zero. This describes profit in excess of normal profit, not normal profit.
In summary, option a accurately captures the concept of normal profit as zero economic profit, while options b, c, and d describe scenarios with losses, incomplete coverage of opportunity costs, or excess profit, respectively. The distinctions hinge on whether implicit costs (opportunity costs) are fully covered and whether economic profit is zero or not.

Normal profit occurs when

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