1001majorch8

1001majorch8 - ECON1001AB IntroductiontoEconomicsI...

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ECON 1001 AB Introduction to Economics I Dr. Ka-fu WONG Eighth week  of tutorial sessions KKL 925, KKL 1010, K812, KKL 106 Clifford CHAN KKL 1109 givencana@yahoo.ca
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Covered and to be covered Covered last week Dr. Wong finished up to kf008.ppt and slide #7 of kf010.ppt You should have at least read up to Chapter 8 The Quest for Profit and the Invisible Hand If not, please press hard on it. Start reading Chapter 10 Monopoly and Other Forms of Imperfect Competition To be covered in the tutorial sessions this week Problems in chapter 8: #1, #3, #5, #7 and #9 An extra question relevant to Chapter 8 You are advised to work on the even ones as well
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Problem #1, Chapter 8 Explain why the following statements are true or false A) The economic maxim: “There’s no cash on the table.” That means there are never any unexploited economic opportunities False This statement is kind of tricky It is wrong that there are never any unexploited economic opportunity In the short run, there are normal unexploited economic opportunities to be drawn from so new entries are attracted by a positive economic profit
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Solution to Problem #1 (1) However, as the number of suppliers grows in the long run, all participating firms will earn a zero economic profit However, as the number of suppliers grows in the long run, the market price will be driven down and all the participating firms will eventually earn a zero economic profit Only in the long run, there are no unexploited economic opportunities But there are exploited economic opportunities in the short run so that new suppliers are encouraged to enter the market!
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Solution to Problem #1 (2) B) Firms in competitive environments making no accounting profit when the market is in long-run equilibrium False Firms in competitive environments make a positive accounting profit in the long-run equilibrium so that it can be used to cover the opportunity cost of resources supplied However, firms in competitive environments make no economic profit in the long-run equilibrium!
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Solution to Problem #1 (3) C) Firms that can introduce cost-saving innovations can make an economic profit in the short run True In the short run, market price of a good has not yet been adjusted, but firms experience a reduction in production cost due to the innovations, and thus they enjoy a higher economic profit The supply curve will shift to the right due to the replication of innovation and the increasing number of suppliers in the market The market price will be driven down until the economic profit gets down to zero
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Problem #3, Chapter 8 Labour $2000 Food and drink $500 Electricity $100 Vehicle lease $150 Rent $500 Interest on loan for equipment $1,000 John Jones owns and manages a café in Collegetown whose annual revenue is $5,000. Annual expenses are as above
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Solution to Problem #3 (1) A) Calculate John’s annual accounting profit
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1001majorch8 - ECON1001AB IntroductiontoEconomicsI...

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