When the firm's nominal profits are divided by the price level,the result is known as ________.

Question

Quizplus · Accepted Answer

When nominal profits (expressed in current dollars) are divided by the price level (also expressed in dollars), the resulting measure is known as real profitability. This measure adjusts for inflation and reflects the purchasing power of profits. Option A is incorrect because nominal profitability is simply the level of profits in current dollars. Option C is partially correct, as adjusting for inflation is part of the calculation for real profitability, but "inflation-adjusted profitability" is not commonly used terminology. Option D is incorrect because relative profitability could refer to comparing the profitability of different firms or industries, and does not specifically involve adjusting for inflation.

When the Firm's Nominal Profits Are Divided by the Price