ECO 201 Chapter Notes - Chapter 13: Opportunity Cost, Economic Efficiency

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pearelk110

30 Dec 2017

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Measured based on an opportunity cost measure of cost. Primary difference between two types of profits is in measurement of cost. +opportunity cost of owner"s resources for which no direct money payment is made. Cost of capital can be explicit or implicit. Firm can rent its capital and pay explicit costs. Firm can buy capital and have implicit costs. *change in market value of capital over a given period. Accounting profits = total revenue explicit costs. Economic profits = total revenue opportunity cost of production. = total revenue explicit costs implicit costs. If economic profits is greater than zero then accounting profits is greater than implicit costs and firms enter. If economic profits is less than zero then accounting profits is less than implicit costs and firms exit. Occurs when a firm produces a given level of output by using the least amount of inputs. May be different combinations of inputs that achieve technological efficiency.

Related Questions

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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During a year of operation, a firm collects $175,000 in revenue and spends $80,000 on raw materials, labor expenses, utilities, and rent. The owners of the firm have provided $500,000 of their own money to the firm instead of investing the money and earning a 14 percent annual rate of return.

a). The explicit costs of the firm are $. The implicit costs are $. The total economic cost is $.

b). The firm's economic profit is $

c). The firm's accounting profit is $

d). If the owners could earn 20 percent annually on the money they have invested in the firm, the economic profit of the firm would be______ (when revenue is $175,000).

earnsacquire or deserve by one's efforts or actionsMore (Definitions, Synonyms, Translation)