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Unformatted text preview: price five cents a gallon and the others do not, what is going to happen? If one gas station lowers it price by five cents a gallon and the others do not, what is going to happen? Economists basically recognize two types of profits. Normal profits and economic profits. Normal profits occur when a firm earns an amount of money that basically covers all of their costs an accountant would figure up and provides a return to the factors of production that the firm owns that is equal to what those factors of production would earn if used in a production process elsewhere. In other words, total revenue minus accounting costs minus opportunity costs. Economic profits occur when a firm earns an amount of money that is in excess of accounting costs and opportunity costs. Think of economic profits as being super duper mega profits....
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- Fall '10