ECN E102 Lecture Notes - Lecture 31: Opportunity Cost, Longrun, Marginal Cost
Document Summary
Recall that profit equals total revenue minus total cost, and that total cost includes all the opportunity costs of the firm. In particular, total cost includes the opportunity cost of the time and money that the firm owners devote to the business. In the zero-profit equilibrium, the firm"s revenue must compensate the owners for these opportunity costs. In the zero-profit equilibrium, economic profit is zero, but accounting profit is positive. Because firms can enter and exit a market in the long run but not in the short run, Suppose the market for milk begins in long-run equilibrium firms are earning. Now suppose scientists discover that milk has miraculous health benefits and as a. All of the existing firms respond to the higher price by raising the amount. Because each firm"s supply curve reflects its marginal-cost curve, how much they. In the new short-run equilibrium, the price of milk exceeds average total cost, so.
