Post Midterm One Accounting v Economic Profits

Accounting Profits v Economic Profits in the Long Run

Economic costs take into account the substraction of implicit costs and explicit costs from total revenue

Explicit Costs

costs the firm pays to the owners of those resources obtained in the market

Implicit Costs

costs of owner supplied resources (ex: time, physical capital, equity)

Accounting Profits

accounting profits are TR - TC (costs are just explicit)

Economic Profits

TR - TC (explicit + implicit costs)

LR Perfectly Competitive Equilibirum means what mathmatically (three things)

• where economics profits are zero

• MR- MC = 0

• P = MC choose q where this occurs

Incentives for Entry

To enter econ profits should be positive. Econ profit > 0

Incentives for Exit

To exit econ profits should be negative. Econ profit < 0

Equity

in economics means the opprotunity cost of cash provided by the owner to business

What are the coniditions for LR Perfectly Competitive Equilibirum

• all firms ar profit maximizing choose a q where P = LRMC

• No incentive for entry or exit aka econ profits are at zero