A Firm That Makes Zero Economic Profits

question 10

Multiple Choice

A firm that makes zero economic profits

• A)Must eventually go bankrupt and exit the industry.
• B)Does not cover its variable costs and should shut down in the short run.
• C)Incurs an accounting loss if fixed costs are greater than variable costs.
• D)Covers all its costs,including a provision for normal profit.

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Definitions:

Credit Sales

Sales in which the customer is allowed to purchase goods or services with an agreement to pay at a later date.

Average Collection Period

The mean duration required for a company to collect payments due from its clients.

Credit Period

The length of time that credit is granted.

Marginally Competitive

Describes markets or situations where small changes in performance or price can significantly affect the competitive position of firms or products.