Author Question: In economic analysis, any amount of profit earned above zero is considered above normal because ... (Read 78 times)

deesands · **on:** Jul 1, 2018

In economic analysis, any amount of profit earned above zero is considered above normal because

A) normally firms are supposed to earn zero profit.
B) this would indicate that the firm's revenue exceeded both its accounting and opportunity cost.
C) this would indicate that the firm was at least earning a profit equal to its opportunity cost.
D) this would indicate that the firm's revenue exceeded its accounting cost.

Question 2

Fixed costs of entry create an advantage for potential entrants since incumbents have already made these expenditures while potential entrants can avoid these costs.

Indicate whether the statement is true or false

perkiness · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

B

Answer to Question 2

False. The advantage is to the incumbent. The incumbent ignores the fixed entry cost since it is a sunk cost. For the potential entrant, the fixed entry cost can be avoided if entry does not occur. Thus the fixed entry cost is an added expense to entrants.