chapter8 - Chapter 8 Chapter 8 The Invisible Hand The...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 8 Chapter 8 The Invisible Hand The Invisible Hand “ It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard of their own interest. We address ourselves not to their humanity but their self-love, and never talk to them of our necessities, but of their advantage. ” – Individuals act in their own interests – Aggregate outcome is collective well-being It is as if “ the entrepreneur is led by an invisible hand to promote an end which was no part of his intention. ” The Invisible Hand The Invisible Hand • Profit motive – Produces highly valued goods and services – Allocates resources to their highest value use Accounting Profit Accounting Profit • Accounting profit = total revenue – explicit costs – Explicit costs: actual payments firms make to purchase factors of production. – Most common profit idea • Objective • Easy to compute • Easy to compare across firms Economic Profit Economic Profit • Economic profit = total revenue - explicit costs - implicit costs • Implicit costs : the opportunity cost of the resources supplied by the firm's owners • Normal profit : the difference between accounting profit and economic profit. Three Kinds of Profit Three Kinds of Profit Total Revenue Explicit Costs Explicit Costs Accounting Profit = Total Revenue - Explicit Costs Economic Profit = Accounting Profit – Normal Profit Economic Profits Guide Decisions Economic Profits Guide Decisions • You own a small restaurant. The restaurant • You own a small restaurant....
View Full Document

This note was uploaded on 02/07/2010 for the course BILD 661039 taught by Professor Mel during the Fall '09 term at UCSB.

Page1 / 11

chapter8 - Chapter 8 Chapter 8 The Invisible Hand The...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online