Other things equal, a firm’s economic profit rises with an increase in:Question 3Answera.owner-supplied capital.b.owner-supplied labour.c.interest rates.d.the price of its product.
Question
Other things equal, a firm’s economic profit rises with an increase in:Question 3Answera.owner-supplied capital.b.owner-supplied labour.c.interest rates.d.the price of its product.
Solution
The answer is d. the price of its product.
Here's why:
a. Owner-supplied capital: While this can potentially increase the firm's capacity to produce goods or services, it doesn't directly lead to an increase in economic profit. It could even lead to a decrease if the capital is not used efficiently.
b. Owner-supplied labour: This could potentially increase productivity, but it doesn't necessarily lead to an increase in economic profit. It could even lead to a decrease if the labour is not used efficiently.
c. Interest rates: An increase in interest rates generally decreases economic profit because it increases the cost of borrowing money.
d. The price of its product: An increase in the price of its product, assuming the quantity sold remains constant
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