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.
-When economic profit is zero, producers do not have any incentive to deviate from the current line of production.

Question

Quizplus · Accepted Answer

Economic profit is calculated as the difference between total revenue and total costs, including the opportunity cost of equity. In this case, the firm's economic profit is $350 million - $320 million - $10 million = $20 million. Since economic profit is positive, the firm has an incentive to continue producing.

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