Week%207%20Session2%202009 - Microeconomics 1 Econ 1101...

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Diane Enahoro Session 2 2009 1 Economic, Accounting and Normal Profit The role of profit in allocating resources The Long-run supply Curve in a Competitive Market Microeconomics 1 Econ 1101 Week 7 Profit and the Invisible Hand Text: Ch 9
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Diane Enahoro Session 2 2009 2 Costs – Implicit and Explicit Costs Explicit Costs – the opportunity costs of resources that are not owned by the firm Implicit costs – the opportunity costs of resources That are owned by the firm. Economic profit = the difference between Total Revenue and the implicit and explicit costs Accounting Profit = the difference between Total Revenue and explicit costs Normal Profit = the level of accounting profit when economic profit equals zero Normal Profit = implicit costs
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Diane Enahoro Session 2 2009 3 Economic Profit = Total Revenue – (Explicit +Implicit Costs) Example: Chris is a personal trainer – he rents space in a gym Rent and equipment costs $10,000 p.a. His only input is his time and he considers this job as equal to his only other job as a security guard at Southie’s with a salary of $30,000 p.a.
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