When a firm earns a rate of return on an investment that _____,it makes a pure economic profit.

Question

Quizplus · Accepted Answer

A pure economic profit occurs when the rate of return on an investment exceeds all relevant costs, including the cost of capital (the cost of borrowed funds). This means the firm is earning more than what would be necessary to cover all its costs and provide a return to its investors at the prevailing rate. Choices A, B, and D do not necessarily imply a return above all costs, including opportunity costs.

When a Firm Earns a Rate of Return on an Investment