In the context of 'Introduction to Economics,' if an industry is experiencing zero economic profit, does this mean that firms will not make any money in this industry?

• A. No, zero economic profit means firms are losing money.
• B. Yes, zero economic profit means firms make no money at all.
• C. Yes, zero economic profit means firms cannot cover their costs.
• D. No, firms can still earn accounting profit even if economic profit is zero.

Answer: (D)

Verified step by step guidance

1. Understand the difference between economic profit and accounting profit. Economic profit accounts for both explicit costs (like wages and materials) and implicit costs (like opportunity costs), while accounting profit only considers explicit costs.
2. Recognize that zero economic profit means total revenue equals total costs, including both explicit and implicit costs. This situation is also called 'normal profit.'
3. Interpret zero economic profit as the firm covering all its costs, including opportunity costs, but not earning extra above that. This means the firm is doing just as well as it could in its next best alternative.
4. Note that even with zero economic profit, the firm can still have a positive accounting profit because accounting profit does not subtract implicit costs.
5. Conclude that zero economic profit does not mean the firm is losing money or making no money; it means the firm is earning enough to cover all costs, including opportunity costs, and is financially sustainable.