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#cfa #cfa-level-1 #economics #microeconomics #reading-15-demand-and-supply-analysis-the-firm #subject-1-types-of-profit-measures
When a firm's total revenues are just equal to its total costs, its economic profit is zero, but it still makes accounting profit. Zero economic profit does not mean that the firm is about to go out of business. Instead, it just indicates that the owners are receiving exactly the market (normal) rate of return on their investment.
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Subject 1. Types of Profit Measures
#13; When economic profit is zero, a firm's accounting profit becomes normal profit, which is effectively the total implicit opportunity cost. Accounting profit = Economic profit + Normal profit <span>When a firm's total revenues are just equal to its total costs, its economic profit is zero, but it still makes accounting profit. Zero economic profit does not mean that the firm is about to go out of business. Instead, it just indicates that the owners are receiving exactly the market (normal) rate of return on their investment. Economic Rent The total income received by an owner of a factor of production is made up of its economic rent and its opportunity cost. &#13


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