III. La humanidad nueva como revelación de Dios
2. El hijo de Dios
. According to Adam Smith, we get our dinner from the butcher and baker due to their e hands.
nce.
. t.
. knowledge of our necessities.
. Which of the following is not a type of profit discussed by economists?
. explicit
. Which of the following is the difference between accounting profit and economic
ll costs
only implicit costs . equal to excess profit
arning cost of your time is 20,000/year
economic profit, the revenue f m
Since revenue = 23,000, your enjoyment must equal 25,000 - 23,000 or 2,000/year. You uld buy the orchard if the enjoyment from working with fruit is worth $2000/year or re to you.
a. accounting profit considers a b. economic profit considers c. normal profit
d
e. zero
4. If accounting profit is less than normal profit, then the firm is e a. a loss.
b. an economic profit.
c. an excess profit.
d. negative accounting profit
own business and your explicit costs are $10,000/year. You $11,000 in your next best alternative job. Your revenue is $12,000/year.
accounting profit?
. 2000 . 11000 . 22000
6. u
could earn $11,000 in your next best alternative job. Your revenue is $12,000/year.
What is your economic profit?
a.
b.
c.
d.
e.
. If firms in an industry earn less than a normal profit, . firms will exit.
stry will fall.
d.
e.
8.
. zero accounting profit.
c.
d.
e. mal profit
he rationing function of prices is to
e goods to those who value them most highly.
ct resources away from "over crowded" markets.
ct resources towards markets that are under-served.
arkets more equitable.
e. equal to opportunity cost.
5. Assume you own your
Assume you own your own business and your explicit costs are $10,000/year. Yo
1000
b. the price of resources in the indu
c. the opportunity cost of resources in the industry will fall.
The price of the industry's product will eventually rise.
all of the above
In the long-run, firms will earn a
b. zero economic profit.
negative accounting profit.
e. keep consumers from buying too much.
ich of the following can be a barrier to entry?
yright protection nts
ulation
. product compatibility . all of the above
1. ployee for a t-shirt concession at a
college sports arena. The financial information for the business is given below.
$15 Number of shirts sold per day 100
our accounting profit?
. Your next best alternative job is to work as a manager for another local retail
business. If your economic profit is zero, how much could you earn as a manager for another business?
. Assume you enjoy owning and operating the t-shirt stand (you value it at $100 per day). If your total costs increased to $1600, and if you shut down total cost would be zero, should you continue selling t-shirts? Explain.
2. Assume you have a permanent patent on a new machine for making t-shirts. The revenue from the new machine has production costs of $300,000 and generates
$500,000 in revenue. If the annual interest rate is 10%, what is the market value of the patent?
Key
Multiple Choice 1. d
2. e 3. c 10. Wh a. cop b. pate c. reg d e
Problems/Short Answer
Assume you own, manage and are the only em
Retail price of shirt
Cost of plain t-shirt $5 each
Cost of t-shirt design $5 each
Equipment rental fee (per day) $100 Stand rental fee (per day) $200
Answer the following, based on the information provided.
a. What is y b
c
4. a 5. d . e
roblems/Short Answer a. TR = $15 x 100 = $1500
c. No, you should not continue selling t-shirts. Accounting profit now equals negative value the work at $100, you should shut down the stand. The 100 value of working at the stand covers the accounting loss, but you can not cover your 6. a
7 8. b 9. a 10. e
P 1
TC (explicit) = $5 (100) + $5 (100) + 100 + 200 = 500 + 500 + 100 + 200 = $1300 Accounting profit = 1500 - 1300 = $200/day
1b. If economic profit is zero, then your next best alternative (opportunity cost) must equal $200/day. TR - TC (implicit + explicit) = 0, so implicit cost (opportunity cost) = TR - TC (explicit) = 1500 - 1300 = 200.
1
$100. Even though you
$
opportunity cost (the income form working in another job).
2. The question is: How much money would you need to put in the bank at 10 percent interest to generate annual earnings of $200,000 (i.e. $500,000 - $300,000)? Let X denote that amount in the equation X(.1) = $200,000 and solve: X = $200,000/.1 =
$2,000,000.
Notes on Teaching: Part 3 Market Imperfections
Overview
Part III moves away from the competitive outcome and efficiency to look at market imperfections. Chapter 9 presents the monopoly model and Chapter 10 uses game theo to illuminate interactions among oligopolists and other imperfectly competitive firm Market failures are discussed in Chapter 11 (externalities) and Chapter 12 (imperfect information).
What’s New?
ry s.
hapter 9 now includes a more detailed discussion of economies of scale and network lic y in chapter 10, expanded graphical treatment of external costs and benefits in Chapter 11, and moral hazard in Chapter 12.
Notes and Suggestions
In this section, students move form their first market structure model, perfect competition, to monopoly. It is important to make it clear to students how the
characteristics of the different market structures are reflected in the graphs they see and draw. A first distinction to be made is that the monopoly graph represents both the firm and the industry (since the firm IS the industry). The next important distinction is the difference between the demand (and therefore the marginal revenue) curve of a
competitor and a monopolist. If the reasons for the different curves are not emphasized, students can approach the graphical analysis as a series of graphs to be memorized (e.g.
the profit, loss, and normal profit graphs for perfect competition and the profit, loss, and normal profit graphs for monopoly). However, if students can see the two major
differences that lead to each case (profit, loss) for monopoly and competition, they more fully understand – and with less work! The two major differences on the graphs are the slope of the demand curve and the placement of the average cost curve. It can be helpful to explain, each and every time a graph is drawn or discussed, that the firm’s demand curve in competition is horizontal because it is a price taker and the demand curve for a monopolist slopes downward because the monopoly must lower price to sell one more.
This leads in to the explanation of what the MR curve looks like. If your students begin to tell the story with you as you draw a graph on the board, it is a good sign! The second important point to make as you add monopoly graphs to the competition graphs is that all cases (profit, loss) are the same except for the placement of the average cost curve.
Relatively high costs lead to losses and relatively low costs lead to profits.
Other links between previous chapters and this section include profit maximization and price elasticity of demand. Make sure student see the analogy between P = MC in perfect C
economies. The presentation of cost curves added to Chapter 6 allows a graphical representation of a monopoly firm’s profit maximizing point. The discussion of pub policy toward natural monopoly, previously in chapter 14, is now included in chapter 9.
Other topics added in this section include; tit-for-tat strateg
competition (where MR = P) and MC opoly. The discussion of price iscrimination is an excellent place t of demand and show how it can e use
The graphical analysis used to present competition and monopoly can be used to gain udent support going in to Chapter 11. Explaining that interdependence in oligopoly
not allow for curves to be graphed can even elicit a cheer from some ever, it is then necessary to explain why the new approach, game theory, is
g
llow up Part II. The discussion of market e balanced with the coverage of market failures. It is important to
conclusion regarding efficiency and the invisible hand to make it = MR for a mon
o review elasticity d
b d to analyze real world firm behavior.
st
markets does lasses. How c
needed for analysis in these situations. John Nash’s Nobel Prize in Economics, and the popular book/movie “A Beautiful Mind” can help to illustrate how interesting and important game theory can be. Make sure students understand that most firms fall alon a spectrum between perfect competition and monopoly.
hapter 11 and 12 are important chapters to fo C
efficiency must b
ference the results and re
clear when markets may not achieve the desired results.