Profit

Explain the meaning of loss

Loss is negative economic profit arising when total revenue is less than total cost.

Define normal profit

Normal Profit equals to the implicit cost (opportunity cost) of the company. It is the amount of revenue needed to cover the costs of employing self-owned resources (implicit costs, including entrepreneurship).

Explain why a firm will continue to operate even when it earns zero economic profit.

A firm will continue to operate because it may able to cover its average variable costs. This is the most important because if it cannot cover these costs in the short run, it will have to shut down in the short run.

Define economic profit

Economic Profit is also referred to as 'extra profit' or abnormal profit. is the case where total revenue exceeds economic cost. (explicit costs + implicit costs)

When do firms earn economic profut

Economic profit (abnormal profit) is profit over and above normal profit (zero economic profit), and that the firm earns normal profit when economic profit (abnormal profit) is zero