Scenario 9.2
Consider a publicly held firm (one whose stock shares are traded on the stock exchange) that earned revenue worth $350 million and incurred land, labor, and debt costs worth $320 million. The stockholders who have invested a total of $100 million in this firm could have earned 10 percent return on other comparable investments.
-A zero economic profit is not a bad thing because:
A)it is a situation in which the owners, or shareholders, of a firm could not do better elsewhere.
B)it is a situation in which the resources of a firm are always optimally utilized.
C)it means that a firm is paying an interest rate that is below the market rate.
D)it means that stock prices will not fall.
E)it means that investors are better off in the current venture than they would be in any other investment.

Question

Quizplus · Accepted Answer

Zero economic profit means that the firm is earning a return just enough to cover its costs and provide a normal rate of return to its shareholders. In this scenario, the shareholders are earning a rate of return of 10 percent, which is comparable to other investments. Therefore, they could not do better elsewhere, and a zero economic profit is not a bad thing.

Scenario 9.2 Consider a Publicly Held Firm (One Whose Stock Shares Are