CFA Practice Question

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CFA Practice Question

The return that a firm's entrepreneur can expect to obtain in the best alternative business is ______.

A. opportunity cost
B. economic profit
C. normal profit
Correct Answer: C

User Contributed Comments 12

User Comment
patsy ??? should t not be A?
zzhumanov The question is about return, not cost.
odette Every entrepreneur expects to get a NORMAL profit not ECONOMIC profit.
jmcohen87 i think return/cost doesnt make a difference...normal profit is part of opport. cost. the amount the etreprenuer can make in another business is the normal profit
wulin Normal profit = Oppo. Cost in terms of value. But they are not exactly the same. One is profit/return, one is cost.
Nyoiks Every investor given another alternative expects to atleast break even. Hence Normal profits. opportunity costs is the sum of all costs an investor is exposed to including normal profit.
AUAU normal profit (loss) = Total Revenue - total cost.
if > o then profit ; = o breakeven ; otherwise loss

econonic profit include the costs of implicit costs like alternative opportunity costs eg. alternative land use or plant uses
geofin From the notes: "normal profit" is effectively the total implicit opportunity cost.

So answers A and C are "effectively" the same...
gill15 Geofin - No normal profit = IOcost only when EProfit = 0
CHUCKYT Normal profit is the market rate of return that the resources would otherwise earn which equals the implicit opportunity costs.
Opportunity costs consist of implicit and explicit costs.
dmfz Passing the CFA test will be our normal profit, the time we're studying for this test is our opportunity cost since we could be doing something else.
schweitzdm @CHUCKYT, I don't think opportunity costs consist of explicit costs.
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