3 ms·
Wouldn't you expect the rate of return to approach the risk free interest rate, rather than profit being zero?
by wcoenen 7y ago
Wouldn't you expect the rate of return to approach the risk free interest rate, rather than profit being zero?
- vikramkr 7y agoZero profits in economic models are usually in the context of economic profits, not accounting profits. So yeah, kind of (though there's risk adjustment needed, but when you start bringing in real world stuff like that your econ 101 supply curve/demand curve abstraction really starts breaking down, there are far more sophisticated economic tools for that). Perfect competition doesn't also really exist so we're just being guided by the math.
- MR4D 7y agoThe risk free interest rate is zero. Heck, by the time you read this, it could go negative!