Refer to the accompanying graph to answer the following questions:
a. At what price levels would a firm make positive economic profits?
b. At what price level would a firm incurring economic losses continue to produce?
c. At what price level would a firm break even?
Definitions:
Average Rate of Return
A method of assessing the profitability of an investment by dividing the average annual profit by the initial investment cost.
Average Investment
A calculation to assess the average amount of investment over a certain period, often used in evaluating the efficiency or profitability of an investment.
Time Value of Money
The concept that money available at the present time is worth more than the same amount in the future due to its earning capacity.
Net Present Value
A calculation that compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account.
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