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If a firm's total revenue exactly covers both its explicit costs and its implicit costs, then the firm is earning:
APositive economic profit on its capital
BZero economic profit, i.e. normal profit
CAn accounting loss on its operations
DSuper-normal (abnormal) economic profit
Answer & Solution
Correct answer: B. Zero economic profit, i.e. normal profit
1. Economic cost = explicit cost + implicit cost, and normal profit is part of implicit cost.
2. When total revenue just equals the sum of explicit and implicit costs, economic profit is zero.
3. Zero economic profit means the firm earns exactly normal profit, so it stays in business.
4. Positive/super-normal profit (A, D) needs revenue above economic cost; an accounting loss (C) needs revenue below explicit cost. Hence zero economic profit.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.1_
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