{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

chapter8 - Chapter 8 The Invisible Hand “It is not from...

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

View Full Document Right Arrow Icon
Chapter 8 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.
Image of page 1

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

View Full Document Right Arrow Icon
The Invisible Hand • Profit motive – Produces highly valued goods and services – Allocates resources to their highest value use 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
Image of page 2
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 Total Revenue Explicit Costs Explicit Costs Accounting Profit = Total Revenue - Explicit Costs Economic Profit = Accounting Profit – Normal Profit
Image of page 3

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

View Full Document Right Arrow Icon
Economic Profits Guide Decisions You own a small restaurant. The restaurant has an annual sales revenue of $200,000.
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern