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Slightly pedantic comment here, but in economic theory, even in a perfectly competitive market, profits never drop to zero. Profits need to be high enough that
by andjd 6y ago
Slightly pedantic comment here, but in economic theory, even in a perfectly competitive market, profits never drop to zero. Profits need to be high enough that owners of an enterprise don't decide to do something else with their time and money.
These businesses may not make enough in profits to attract venture capital, but that doesn't mean they aren't more lucrative to the people running them than their other options.
- iudqnolq 6y agoEven more pedantic, but in economic theory in a perfectly competitive market (edit: at equilibrium) economic profit exactly equals zero. This is because the owner not doing something else with their time (called opportunity cost) is accounted for as a cost. What you're describing would be called "accounting profit" instead of "economic profit" by an economist to specify it only takes into account costs on the books, not opportunity costs. Edit: See https://en.wikipedia.org/wiki/Zero-profit_condition https://en.wikipedia.org/wiki/Zero-profit_condition
- colinmhayes 6y agoEconomics includes opportunity cost, so yes, in competitive markets profits will drop to 0.