CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

The owners of a firm are earning economic profit if ______
A. return on their capital exceeds zero.
B. price exceeds average variable costs at the shutdown point.
C. they are earning a return on their capital that is higher than what can generally be earned (normal rate of return) in other markets.
Explanation: The normal rate of return is the return that could be earned on investment funds in other markets. In purely competitive markets, this rate of return is zero economic profit. A rate of return in excess of the normal rate of return implies that positive profits exist because the firm is earning more revenue than it spends on production costs.

User Contributed Comments 1

User Comment
cong A descrbies accounting profit.
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