ECON 101 Study Guide - Midterm Guide: Economic Rent, Reservation Price, Opportunity Cost

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amethystgrasshopper107

30 Oct 2014

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Profits: accounting profit is the difference between a firm"s revenue and its explicit expenses, economic profit is the difference between revenue and the sum of the firm"s explicit and implicit costs. Only the owner of a scarce resource can make economic profit: normal profit is the difference between accounting profit and economic profit. It is the opportunity cost of the resources supplied to a business by its owners. The market outcome is the efficient outcome- there is no way to rearrange resources to benefit some people without harming others. Economic rent is the portion of the payment for an input that exceeds the reservation price for that input: economic rent can persist indefinitely (as opposed to economic profit, which is driven to 0 by market forces) The no-cash-on-the-table-principle implies that if someone owns a valuable resource, the market price of that resource will fully reflect its economic value. This implies that lucrative opportunities cannot exist when markets are in equilibrium.

Related Questions

You may be aware that there are three types of profit: accounting profit, economic profit, and normal profit. The difference between the total revenue and the sum of the explicit and implicit costs of an organization results in economic profit. It is commonly assumed that every firm's goal is to maximize its profit, and the economic theory of business is built on this underlying assumption. Address the following in detail: Describe the economic principles that company executives should consider when developing a strategy or strategies that will maximize profits while minimizing incentives for competitors to develop competing products. Explain why each of these economic principles is important to the company's strategy. Recommend and justify a strategy that you believe will maximize profits while minimizing incentives for increased competition.

crimsonhedgehog165

You may be aware that there are three types of profit: accounting profit, economic profit, and normal profit. The difference between the total revenue and the sum of the explicit and implicit costs of an organization results in economic profit. It is commonly assumed that every firm's goal is to maximize its profit, and the economic theory of business is built on this underlying assumption. Address the following in detail: Describe the economic principles that company executives should consider when developing a strategy or strategies that will maximize profits while minimizing incentives for competitors to develop competing products. Explain why each of these economic principles is important to the company's strategy. Recommend and justify a strategy that you believe will maximize profits while minimizing incentives for increased competition.

blackbat76

26. To the economist total cost includes

A. explicit and implicit costs.

B neither implicit nor explicit costs.

C. implicit, but not explicit, costs.

D. explicit, but not implicit, costs.

27. Accounting profits are typically

A. greater than economic profits because the former do not take explicit costs into account

B. equal to economic profits because accounting costs include all opportunity costs.

C. smaller than economic profits because the former do not take implicit costs into account.

D. greater than economic profits because the former do not take implicit costs into account.

28. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

A. $100,000 and its economic profits were $0.

B. $200,000 and its economic profits were $0.

C. $100,000 and its economic profits were $100,000.

D. $0 and its economic loss was $200,000.

29. The basic difference between the short run and the long run is that

A. all costs are fixed in the short run, but all costs are variable in the long run.

B. the law of diminishing returns applies in the long run but not in the short run.

C. at least one resource is fixed in the short run, while all resources are variable in the long run.

D. economies of scale may be present in the short run but not in the long run.

30. The law of diminishing returns indicates that

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

B. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.

C. the demand for goods produced by purely competitive industries is downsloping.

D. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

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ECON 101 Study Guide - Midterm Guide: Economic Rent, Reservation Price, Opportunity Cost

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