Question

Consider Figure 21-2. Explain why the figure indicates that if the normal rate of return on investment were to remain unchanged while accounting profit increased, economic profit also would increase.

Short answer

If the normal rate of return on investment were to remain unchanged while accounting profit increased, economic profit also would increase

Step-by-step solution

Given Information

This is a result of the economic benefit is the contrast between the all-out income and every single economic expense. The economic expense incorporates every one of the unequivocal and understood costs.

Explanation

The unequivocal expenses are the immediate expense of the firm like compensations, compensation, etc. The certain expenses or ascribed costs are the open door cost of the assets. The economic benefit is considered both the certain and express expenses too. The economic benefit is the contrast between absolute income and all express expenses and understood costs. The unequivocal expense is the sum paid as compensations, lease and other expenses. The verifiable expense is considered as the open door cost of elements.