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Your coworker is wise. Economic theory holds that in a truly efficient market, profits approach 0.
by brewdad 3y ago
Your coworker is wise. Economic theory holds that in a truly efficient market, profits approach 0.
- convolvatron 3y agodoes that mean that investment is fundamentally beholden to market inefficiency?
- bordercases 3y ago“Market failure”, “Market gap”
- kuchenbecker 3y agoExploitation of a knowledge gap and existing market constraints.
- SV_BubbleTime 3y agoIf all you can think of are services, maybe. But the people that make things don’t agree.
- barrysteve 3y agono more than engineering is fundamentally beholden to imperfect science.
- MSFT_Edging 3y agoWe ship fruit from Argentina where it is grown, to Thailand to be packaged, to the United States to be consumed. While it may be efficient from the perspective of a spreadsheet, its inefficient due to the external costs, ie pollution from shipping, the delicate nature of just-in-time shipments, etc. Your fruit cup might cost a bit more if it was to be done all in one place, but I would call that a cost for a less fragile system.
- doliveira 3y agoProbably I had already heard it in a longer version but wow, summing it up like that really hits home.
- sclarisse 3y agoThat’s economic profits that approach 0. You can still run an accounting profit, it’s just not bigger than it would be if you invested your money somewhere else, like land or mining or coffeeshops or whatever.
- rchaud 3y agoEconomic profit is still there, it's abnormal profits that would go to zero. With zero EP the opportunity cost of staying in business would be to high. With 0 AP, the industry is in equilibrium, with no companies dropping out, and no companies entering the market.
- sclarisse 3y agoThe economic profit is literally defined as the accounting-type profits, minus the opportunity costs. When the opportunity cost is large like that you are describing negative economic profit.