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2012.04.30 - ECON1101, Week 9 Lecture Notes

2012.04.30 - ECON1101, Week 9 Lecture Notes - CHAPTER 9 The...

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C HAPTER 9 The quest for profit and the invisible hand Lecturer: Alberto Motta Week 9 ECON1101
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9-2 L EARNING O BJECTIVES ! Define economic, accounting and normal profits ! Explain how firms respond to economic profits and loses in competitive industries ! Describe the perfectly elastic long-run supply curve ! List the features of long-run market equilibrium ! Explain and predict the workings of the ‘invisible hand’
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9-3 R OLE OF ECONOMIC PROFIT ! Economic profit The difference between the firm’s total revenue and the sum of its explicit and implicit costs ! Economic profit = total revenue – (explicit costs + implicit costs)
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9-4 E CONOMIC PROFIT ! Explicit costs The opportunity costs of resources that the firm uses that are supplied from outside the firm ! Implicit costs The value of best opportunity forgone by the firm when it uses resources supplied by the firm’s owners
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9-5 A CCOUNTING PROFIT ! The difference between a firm’s total revenue and its explicit costs ! Accounting profit = total revenue – explicit costs
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9-6 N ORMAL PROFIT ! The level of accounting profit that a firm earns when economic profit is zero. It is equal to the opportunity cost of the resources supplied to a business by its owners
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9-7 T HE THREE CONCEPTS OF PROFIT
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9-8 S HOULD A NDY STAY IN THE FARMING BUSINESS ?
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9-9 D OES A NDY OWNING LAND MAKE A DIFFERENCE ?
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9-10 T HE INVISIBLE HAND THEORY !
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