Chapter 10R, Problem 3MCQ

To determine

The level of profit just enough to keep a firm operating in long run.

Answer to Problem 3MCQ

(a) Normal.

Explanation of Solution

Normal profit is the level of production where the firm is earning enough to cover its explicit and implicit costs and maintain the resources at their current use. In the long run time period, the firms produce at a normal profit level. At this level of profit, the resources are earning enough to cover their costs. The resources are employed at the level where they cannot do any better in their alternative use. Hence, option (a) is correct.

Option (b) is wrong because, in the long run, economic profit is zero, which means normal profit.

Option (c) is incorrect because accounting profit does not include explicit cost, which is important to cover for being in the market.

Option (d) and (e) are incorrect because to operate in the long run, the firm must cover the implicit cost and implicit cost.

Economics Concept Introduction

Introduction:

Normal profit is the level where economic profit is Zero. At this level of production, the firm is able to cover both explicit and implicit costs. At the normal profit level, the firm is able to earn enough to keep the resources at their current use.