What is the difference between economic profit and producer surplus?
While economic profit is the difference between total revenue and total cost, producer surplus is the difference between total revenue and total variable cost. The difference between economic profit and producer surplus is the fixed cost of production. 5. Why do firms enter an industry when they know that in the long run economic profit will be zero? Firms enter an industry when they expect to earn economic profit. These short-run profits are enough to encourage entry. Zero economic profits in the long run imply normal returns to the factors of production, including the labor and capital of the owners of firms. For example, the owner of a small business might experience positive accounting profits before the foregone wages from running the business are subtracted from these profits. If the revenue minus other costs is just equal to what could be earned elsewhere, then the owner is indifferent to staying in business or exiting. 6. At the beginning of the twentieth century, there were ma
