Ch 8 Answers to Problems 1 a. False: the maxim tells us that there are no unexploited economic opportunities when the market is in long-run equilibrium. b. False: firms in long-run equilibrium have to make an accounting profit in order to cover the opportunity cost of resources supplied by their owners. In the long-run their economic profit will be zero, with the accounting profit equal to the opportunity cost of resources (the normal return). c. True: These firms can earn economic profits until other firms adopt their innovations. As the innovations spread, the industry supply curve will shift down, causing the market price of the good to fall and eroding the short-term economic profit. 2. skip 3 This problem isn’t clear on what the labor costs cover. Is it John’s labor or somebody he hires to help. You should assume that this labor cost is not his own, but instead covers the hired help. a. John's accounting profit is his revenue minus his explicit costs, or $750 per week.
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This note was uploaded on 02/01/2008 for the course ECON 201 taught by Professor Doyle during the Fall '07 term at James Madison University.