Zero-profit condition
Encyclopedia
In economic
competition
theory, the zero-profit condition describes the condition that occurs when an industry or type of business has an extremely low (near-zero) cost of entry. In this situation, many people tend to join the industry, seeing the opportunity to make money, until there is no more money to make (supply exceeds demand); the large amount of competition limits each person's share of the market, as well as their ability to pursue a large profit margin. This would represent a situation of almost perfect competition
.
For instance, despite the real estate
boom of the mid-2000s, the incomes of real estate agents have not risen significantly. It is easy to become an agent, so when profits start to rise, more people do become agents, and the existing agents start to sell fewer houses.
Historically, this condition was present in most gold rushes, as diggings required nothing but manpower and few skills or machinery. It has been noted in such circumstances, that the ancillary services supplying the activity become very successful. For example, few gold prospectors got rich, but many made solid businesses out of selling e.g. shovels etc.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
competition
Competition
Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...
theory, the zero-profit condition describes the condition that occurs when an industry or type of business has an extremely low (near-zero) cost of entry. In this situation, many people tend to join the industry, seeing the opportunity to make money, until there is no more money to make (supply exceeds demand); the large amount of competition limits each person's share of the market, as well as their ability to pursue a large profit margin. This would represent a situation of almost perfect competition
Perfect competition
In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets...
.
For instance, despite the real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
boom of the mid-2000s, the incomes of real estate agents have not risen significantly. It is easy to become an agent, so when profits start to rise, more people do become agents, and the existing agents start to sell fewer houses.
Historically, this condition was present in most gold rushes, as diggings required nothing but manpower and few skills or machinery. It has been noted in such circumstances, that the ancillary services supplying the activity become very successful. For example, few gold prospectors got rich, but many made solid businesses out of selling e.g. shovels etc.