Eco 101

1039 Words5 Pages
1. Define explicit and implicit costs. The opportunity cost equal to what a firm give up in order to use factors which in neither in purchases or hires. It’s the opposite of an explicit cost, which is borne directly. 2. Define Normal Profit and explain why it is an implicit cost. The difference between total revenue and total costs (explicit and implicit costs) equals zero, and it is an implicit cost because opportunity cost is considered in it. 3. Define Economic Profit, Short Run and Long Run. The difference between the revenue received from the sale of an output and the opportunity cost of the inputs uses. Profit in the short run is that when a period is short enough that some of the firm can’t be varied. Profit in the…show more content…
12. Explain the relationship between a normal profit and economic profit. Economic profit is also known as the cost of doing business, this is because it includes opportunity costs. The general goal of a business is to maximize profit so if it can make more profit doing another thing it will do so. Normal profit is the amount of profit that will keep the business open in the same industry. So from that we get that economic profit is a higher amount than needed to operate a business. this will change the opportunity cost for those not in the same industry which will lead t more competition, then that will lower the price and the output of each individual business until the economic profit disappears. Then when there is economic lose there will be an motivation for business to leave the industry. 13. At what output level is profit maximized? Explain why profit is maximized at this output level (hint: you need to refer to MR and MC). In the short term firms compare the amount of each additional unit of output would add to their total revenue and to total costs. The firm then compares the marginal revenue to marginal cost of each additional unit of output. 14. Draw a graph with MR, MC, and ATC. Show the area representing profit. 15. What is the shutdown point? Explain why firms will shutdown at this particular point. The shutdown point is the point of operations where a firm is indifferent between continuing operations and shutting down
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