Asked by Aaliyah Boone on Jul 16, 2024
Verified
A firm ________ if it earns zero economic profit.
A) earns a negative rate of return
B) will leave the industry
C) earns a positive but below normal rate of return
D) earns exactly a normal rate of return
Economic Profit
The distinction between gross revenue and total expenditures, inclusive of both explicit and latent costs.
Normal Rate
Typically refers to a benchmark interest rate considered to be standard based on historical averages, often used by central banks.
- Determine the customary return rate and its relevance in the analysis of economic gains.
Verified Answer
RS
Ravneet SinghJul 19, 2024
Final Answer :
D
Explanation :
When a firm earns zero economic profit, it means that it is covering all its explicit and implicit costs, including a normal rate of return on its capital. This is considered breaking even in economic terms, not a signal to leave the industry or an indication of underperformance.
Learning Objectives
- Determine the customary return rate and its relevance in the analysis of economic gains.