What is the lowest value of economic profit that the firm must earn if it is to keep its resources in the current industry?
do some research, then take a shot. Hint: what is the difference between economic profit and accounting profit.
zero economic profit?
What is the lowest value of economic profit that the firm must earn if it is to keep its resources in the current industry?
Economic profit equal to 10% of the cost of capital plus labor
Economic profit that is less than zero
Economic profit equal to explicit costs of production
To determine the lowest value of economic profit required for a firm to keep its resources in the current industry, we first need to understand the difference between economic profit and accounting profit.
Accounting profit is the difference between a firm's total revenue and its explicit costs, such as labor, raw materials, and overhead expenses. It only takes into account the explicit costs and does not consider the opportunity cost of the resources used.
On the other hand, economic profit goes beyond the explicit costs and also incorporates the implicit costs or opportunity costs. Implicit costs refer to the value of the next best alternative forgone when a particular resource is used. Economic profit factors in the opportunity cost of using the firm's resources in their next best alternative use outside the current industry.
If a firm generates positive economic profit, it means the returns from the current industry are higher than what could be gained in the next best alternative. However, if economic profit is negative or zero, it suggests that the firm could use its resources more profitably outside the current industry.
Therefore, the lowest value of economic profit that a firm must earn to keep its resources in the current industry is zero. When economic profit is zero, it indicates that the firm is just covering all its costs, including explicit and implicit costs, without any additional return. Any economic profit below zero would mean that the firm can allocate its resources more efficiently or profitably elsewhere.
Please note that the specific threshold for economic profit to retain resources in the industry may vary depending on various factors such as industry norms, competition, and the firm's objectives.