How do you feel about business profits and losses? Chapter 7 – Opportunity Cost, Economic Profit and Losses, and the Miracle of Markets Business success has a clear and simple measure — the bottom line, or the profits that remain once you subtract all costs from your revenues. Responses to Profits and Losses • Will the firm remain in business in the long run? Does maximizing profit (producing where MR = MC) imply an actual economic profit? B) achieve full employment and price level stability. C) contribute to a more equal distribution of income. And if profits are bad, are losses good? Economic profits and losses: A. are both considered by economists to be a part of production costs. Economic profits and losses: A. are both considered by economists to be a part of production costs. When you know this fact, his decision to switch careers doesn’t seem like such a good idea. Why? Why? Economists like to concentrate on economic profits and losses rather than accounting profits or losses because the economic profits and losses … Recall from previous lectures that firms use their average cost (AC) to determine profitability. From society’s point of view the economic function of profits and losses is to: A) promote the equal distribution of real assets and wealth. Many economic issues concern profit and loss. Most people have strong feelings about these questions. D) reallocate resources from less desired to more desired uses. The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a … Are profits bad? Economic profits and losses: A. 3. B. are essential to the reallocation of resources from less desired to more desired goods. 36. C. have no influence on the composition of domestic output. Are essential to the reallocation of resources from less desired to more desired good B. Equalize the distribution of income in the long run C. Are both considered by economist to be a part of production costs D. Have no influence on the composition of domestic output D. equalize the distribution of income in the long run. Accounting profit is one of the critical indicators. D. equalize the distribution of income in the long run. – If it covers ALL of its costs • Firms that earn normal profit recover only their opportunity cost • Firms that earn positive economic profit recover more than their opportunity cost • Markets in which firms are earning economic Average cost in this example is average total cost (ATC). Unfortunately, they lack an understanding of the formation and function of profits and losses in a free market economy. The answer depends on firm’s profit margin (or average profit), which is the relationship between price and average total cost. 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