chapter 8 - TheQuestforProfitand theInvisibleHand Ka-fu...

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1 Ka-fu Wong University of Hong Kong The Quest for Profit and  the Invisible Hand
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2 Helping the taxi drivers On April 24, 2003, the Commissioner for Transport  (HKSAR), Mr Robert Footman, announced a scheme to  relax general stopping restrictions for taxis to  provide  immediate relief to the trade under the difficult operating  environment  with the outbreak of atypical pneumonia.  Can such policy achieve its goal?
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3 Different Types of Profit Profit = Total revenue - Total cost Accounting profit = Total revenue -  Explicit costs Economic profit  = Total revenue - All costs (implicit and explicit) Normal profit  = the opportunity cost of the resources owned by the firm
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4 Different Types of Profit Total Revenue Explicit costs Accounting profit Explicit costs Economic  profit Normal profit Opportunity cost of  resources supplied by  owners of firm
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5 Example 8.4. Cullen Buffet runs a miniature golf course in Odessa,  Texas.
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6 Example 8.4. He rents the course and equipment from a large  recreational supply company, for which he pays a  monthly fee of $1000.  He supplies his own labor, and considers the job of  running the golf course just as attractive as his only  other employment opportunity, working in a grocery  store at a salary of $800/mo.   Monthly revenue from ticket sales is $2000/mo. What at is Cullen's accounting profit?  His economic  profit?
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7 Example 8.4. He rents the course and equipment from a large recreational  supply company, for which he pays a monthly fee of $1000.  He supplies his own labor, and considers the job of running the golf  course just as attractive as his only other employment opportunity,  working in a grocery store at a salary of $800/mo.   Monthly revenue from ticket sales is $2000/mo. What at is Cullen's accounting profit?  His economic profit? Accounting profit = $2000 - $1000 = $1000/mo. Economic profit = $2000 - $1000 - $800 = $200/mo.
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8 Example 8.5. Now suppose Cullen learns that his Uncle Warren  has  died and left him this parcel of land in New York City. 59th Street 58th Street Fifth Ave Sixth Ave
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Example 8.5. The land has been cleared, and Cullen discovers that a  construction company is willing to install and maintain a  miniature golf course on it for a payment of  $4000/month.   A market survey reveals that he would collect $16,000/ month in revenue by operating a miniature golf course  there.  The cost of living in New York is the same as in  Odessa.   If Cullen opens a golf course on the Manhattan site,  what will be his accounting profit? Accounting profit = $16,000 - $4000 = $12,000/mo
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This note was uploaded on 11/07/2010 for the course ECONOMICS ECON1001 taught by Professor Prof during the Spring '10 term at HKU.

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chapter 8 - TheQuestforProfitand theInvisibleHand Ka-fu...

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