Homework Set 4 - Homework Set 4: Chapters 8 & 10 Eco...

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Eco F304K Summer, 2008 Due Date: 7/1/08   Chapter 8: Profits 1. To fully understand the factors compelling firms to leave one industry to join another, the distinction between accounting  profits and economic profits must be clear.  The following table shows the revenue and cost data for a perfectly competitive firm. Output Total  Revenues Explicit  Costs Implicit Costs 10 $70 $55 $7 20 $140 $130 $8 30 $210 $201 $9 40 $280 $280 $10 50 $350 $360 $11 A. If the firm were to produce 20 units, its accounting profits are ($10/$8) _______ and its economic profits are ($10/$2)  __________. B. When 40 units are produced, an accountant would conclude the firm is (earning a loss/breaking even) _________________  while the economist would argue the firm is (earning a loss/breaking even) _____________________. C. The owners of the firm are doing as well as their next-best alternative when production is (30/40) ______ units. D. If all firms in the industry have the same revenue and cost structure as above and all are producing 40 units of output, one  can predict that firms will be (entering/exiting) ________________ the industry because (accounting profits are zero/economic  profits are negative) ___________________________. E. If all firms in the industry have the same revenue and cost structure as above and all are producing 20 units of output, one 
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Homework Set 4 - Homework Set 4: Chapters 8 & 10 Eco...

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