Which of the following lists the three main methods entrepreneurs use to generate economic profits?

• A. Price fixing, government subsidies, and monopolization
• B. Innovation, risk-taking, and arbitrage
• C. Tax evasion, cost-cutting, and market manipulation
• D. Advertising, outsourcing, and price discrimination

Answer: (B)

Verified step by step guidance

1. Understand the concept of economic profits: Economic profit is the difference between total revenue and total costs, including both explicit and implicit costs. Entrepreneurs seek to generate economic profits by creating value beyond these costs.
2. Identify the main methods entrepreneurs use to generate economic profits by considering fundamental economic activities: Innovation involves introducing new products or processes that can create competitive advantages.
3. Recognize risk-taking as a key entrepreneurial method: Entrepreneurs invest resources under uncertainty, hoping to earn profits that compensate for the risks taken.
4. Understand arbitrage as the practice of exploiting price differences across markets or time to earn profits without producing new goods or services.
5. Evaluate the given options by matching them to these core entrepreneurial activities: Innovation, risk-taking, and arbitrage align with the economic theory of how entrepreneurs generate profits, unlike the other options which involve unethical or secondary business practices.