When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _______ of investing in physical capital.

Question

Quizplus · Accepted Answer

The opportunity cost refers to the cost of an alternative that must be forgone in order to pursue a certain action. In this case, using retained profits to invest in more energy efficient equipment means the firm cannot use those funds for other potential investments or purposes, making the opportunity cost the correct concept to apply.

When a Firm Uses Retained Profits to Invest in More