What is the lowest value of economic profit that the firm must earn if it is to keep its resources in the current industry?
To determine the lowest value of economic profit that a firm must earn in order to keep its resources in the current industry, we need to understand the concept of economic profit.
Economic profit is the difference between a firm's total revenue and its total cost, including both explicit costs (such as wages, rent, and utility expenses) and implicit costs (such as the opportunity cost of using the firm's own resources instead of selling them elsewhere).
If the economic profit of a firm is negative, it means that the costs incurred by the firm exceed its revenue, indicating that the firm is not generating enough profit to cover all its expenses, including the foregone opportunities. In this situation, the firm may consider reallocating its resources to another industry or exiting the market altogether.
However, if the economic profit is equal to zero or positive, it means that the revenue generated by the firm is enough to cover both explicit and implicit costs, allowing the firm to continue operating in the current industry.
Therefore, the lowest value of economic profit that the firm must earn to keep its resources in the current industry is zero. If the firm's economic profit drops below zero, it indicates that the firm is incurring losses and may consider leaving the industry.