Asked by Chrisitna Giosso on Apr 26, 2024
Verified
The authors explain that a firm earning a zero economic profit in the long run has earned a competitive return on their investment. What do they mean by "competitive" return in this context?
A) The firm's return could only be earned under perfect competition and would be smaller under imperfect competition.
B) The firm's return is at least as larger as the returns earned by other firms.
C) The firm's return is at least as larger as could be earned in another investment.
D) The firm's return is negative, which initiates stronger competition among firms in the market.
Competitive Return
The earning or return that an investment generates, over and above the risk-free rate, due to its competitive advantage.
Economic Profit
The difference between total revenue and total cost, including both explicit and implicit costs.
Investment
The allocation of resources, usually financial, into assets with the expectation of generating income or profit in the future.
- Analyze the relationship between economic and accounting profits in the context of long-run competitive equilibrium.
Verified Answer
RS
Rachel StollaApr 30, 2024
Final Answer :
C
Explanation :
A competitive return means the firm's return is at least as large as could be earned in another investment, indicating the firm is covering its opportunity costs, including a normal profit.
Learning Objectives
- Analyze the relationship between economic and accounting profits in the context of long-run competitive equilibrium.