Wednesday, August 10, 2011

Economics question on weather one should continue a business?

Accounting profit does not account for opportunity cost, personal desires, and life goals. All those are illustrated by economic profit. The profit max rule being MR=MC (marginal revenue=marginal cost). Wendy's was started in a perfectly competitive market. Due to market conditions (price taker, large number of competitors, similar products) it is not uncommon for a firm in a perfectly competitive market to earn an economic profit of zero. This does not mean that a firm should quit.

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