How to do economic analysis of companies, Microeconomics

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For the purposes of economic analysis, a normal profit contains the cost of the lost opportunity of the next best option allocation of the firms resources.  In a purely competitive world, a business should be able to cover their costs of production and the opportunity cost of the next best option (and nothing more in the long-run).    In an accounting sense there is no benchmark to verify whether the resource allocation was wise.  Instead various financial ratios are used to verify how the firm has done with respect to same situated companies.

 


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