Firms receive an accounting profit but not an economic profit under perfect competition. Accounting profit is the simple financial calculation of total money in minus total money out. If there was no accounting profit, no businesses would enter the market in a perfectly competitive environment. Economic profit, however, is always zero in a state of perfect competition, because you factor in opportunity cost—which, in perfect competition, is exactly equal to the potential earnings.
I would say that most of my decisions would be made in a competitive market. I figure that if I don't apply for a job then that position will still be filled, so my services are exchangeable with another individual's service and skills. It may not be a state of perfect competition, because I have strategic advantages and my competitors do as well (be it for a job or when selling a product), but it is competitive nonetheless.
Saturday, May 25, 2019
Do firms earn accounting profit under perfect competition? Do firms earn economic profit? Viewing yourself as a firm, would you say that most of your career choices will be made in a competitive market? Explain.
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