Business Starting Grants

Why start a new business when an economic profit is ZERO in a competitive markets?

Suppose I was working and was paid $50,000 a year. Now, I decided to open a new business and earn no economic profit, right? But as you know, economic profit already includes my opportunity cost, which is $50,000. So, here I can conclude that I'm earning that $50,000 in a new business too... My question is "What is the point of opening a new business?". Thanx

Public Comments

1. In how much time? Where are you going to do this? You have to consider where, when, why, & HOW MUCH? Give it a chance. Is a dream u have? Marketing strategies? Dont worry, figure a game plan and work with it. Try it! Dont regret it by not doin it!
2. New business..........old market. Try New business..............new market. Before you start any business, you should check out the market first. Today you have to be very different from the rest of the market to succeed. Low overhead........high turnover....high demand....low selling price. Look at the big picture. Buy an item at .90 cents.....sell it at dollar.....not much profit eh? Sell one million in one day..... now we are going to the bank SALES= 1,000,000, 00 COST OF PRUDUCT $900,000.00 COST OF SALES 10,000.00 = 910,000.00 PROFIT 90,000.00
3. Some people like to be their own boss and you may have the potential to earn more. There are also tax perks in having your own business.
4. Based on your example, you could ask why you stay in your job since the economic profit of that over owning a business is zero. But, the only markets that are perfectly competitive are in the sterile pages of economic books. Even in the most competitive of products and services you'll find value differentiators - intended or unintended - that may sway your decision one way or another in a purchase decision. For example, a few nights ago, I willingly paid $0.01/gal for gas because the station I uses is more convenient to my driving pattern and safer for exiting. That's probably not a value differentiator the gas station owner ever thought about, but nevertheless it exists. Beside, you may not be considering all of your opportunity costs. Perhaps the $50k salary job requires long hours that eats up all of your hobby time. So, maybe opening a business that is based on your hobby allows you more time to be doing something that you enjoy. What's the opportunity cost of not having your heart into something for $50k vs. being passionate about it?
5. To answer this question, one has to be careful in defining profit. When economists say that perfect competition results in zero profits, they mean profits greater than necessary to provide a normal rate of return on capital invested in the business. The business must earn enough revenue to pay for the cost of inputs such as wages paid to workers or payments for raw materials, utilities,etc. If not, the business could not buy inputs. One input is capital. Thus even under perfect competition, the business must earn enough to provide a normal return on capital otherwise no one would invest in this business. When economists say that perfect competition results in zero profits, they really mean that excess profits greater than that required to provide a normal rate of return on capital will be reduced to zero. Thus there is still an incentive to start up a business even in a perfectly competitive market.
6. i dont believe economic class is any use. its just like fruedian psychology- find me someone who came out saner than when they went in. Tell me this if you selling a car so you are a car salesmen, you bought it for 25k, tell me this-are you going to sell it for 25k or anything less? people dont start business to loss money or break even. people go into business to make profits. go to your local storeowners and ask did you start a business to break even. if you are looking to breakeven then you should work for enough to be feed the cheapest and lowest quality foods.