Explain whether a firm’s decisions are optimal if economic profit is (a) positive, (b) zero, or (c) negative.
What will be an ideal response?
If economic profit is positive, then the firm’s decisions are optimal; that is, its price and output yield a profit larger than any alternative prices and outputs.If economic profit is zero, then the firm’s choices are still satisfactory, because its price and output yield as much profit as the best available alternative.If economic profit is negative, then the choice is not optimal; there exists at least one alternative price-output combination that is more profitable.
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