You borrow $10,000 at an interest rate of 5% to open Movies Galore, a DVD rental store. You will earn an economic profit if the return on your investment is

Question

Quizplus · Accepted Answer

Economic profit occurs when the return on investment exceeds all costs, including the opportunity cost of capital. Here, the opportunity cost is the 5% interest rate, so earning more than 5% means making an economic profit.

You Borrow $10,000 at an Interest Rate of 5% to Open