Multiple Choice
In a competitive market, each seller has limited control over the price of their product because:
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
In the context of competitive markets, the concept that explains how companies remain in business is referred to as:
A
Economic profit
B
Producer surplus
C
Accounting profit
D
Normal profit
Verified step by step guidance1
Understand the concept of 'Normal profit' in competitive markets: it is the minimum level of profit needed for a firm to remain in business, covering all opportunity costs.
Recognize that 'Economic profit' is total revenue minus total costs, including both explicit and implicit costs; when economic profit is zero, the firm earns normal profit.
Distinguish 'Accounting profit' as total revenue minus explicit costs only, which does not account for opportunity costs.
Know that 'Producer surplus' is the difference between what producers are paid and their minimum acceptable amount, but it does not directly explain business sustainability.
Conclude that 'Normal profit' represents the break-even point where firms cover all costs and have no incentive to exit or enter the market, thus explaining how companies remain in business.
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