| Line 278: |
Line 278: |
| | The term “normal profit” means “zero economic profits,” which occurs when total revenue equals explicit costs (like cash expenditures) plus implicit costs (like opportunity costs of wasted time). In Figure B (attached), at point A, what kind of profits does the company have: (a) more than a “normal profit”, (b) equal to a “normal profit” or (c) less than a “normal profit.”? | | The term “normal profit” means “zero economic profits,” which occurs when total revenue equals explicit costs (like cash expenditures) plus implicit costs (like opportunity costs of wasted time). In Figure B (attached), at point A, what kind of profits does the company have: (a) more than a “normal profit”, (b) equal to a “normal profit” or (c) less than a “normal profit.”? |
| | | | |
| − | Correct mistake in Lecture 12 about shape of Lorenz curve with respect to actual income.
| + | Like many fields, it is often helpful for the student to find something easy to understand and then relate difficult ideas to that concept. Which concept are you most comfortable with? Perfect competition? Elasticity? MR=MC? Monopolies? In perfect competition, economic profits are squeezed to zero. P=MC. P=ATC. From there, you can understand monopolies better. A monopoly must be something other than perfect competition. Economic profits are greater than zero; economic rent exists. P>MC. P>ATC. But in both competition and monopolies, MR=MC. |
| − | | |
| − | Knowing and understanding basic concepts are the key to mastering economics exams. Return to page one of this lecture and make sure you understand every concept listed. Return to the lecture in which they were discussed and explained, and reexamine the homework as you have difficulties. Don’t worry about the most difficult concepts discussed in the course, such as the Giffen good. Instead, master the basics and be ready to apply them logically to the final exam.
| |
| − | | |
| − | “Efficiency” is a basic economic concept that underlies many of the concepts on page one. In the long run, for example, a company’s production is at its most efficient level. All costs are optimized. In the long run, every cost is a variable cost that can be adjusted to attain maximum output for minimum input. In the “long run,” the firm can vary its output by varying all its factors of production, including its plant scale.
| |
| − | | |
| − | The efficient level of production for a company is somewhere on its production possibilities curve. Where would an inefficient level be represented graphically? At a point where production is less than an amount on the curve. This would be a point inside the curve, closer to the origin. If there is a technological improvement that enhances efficiency, then the entire curve shifts outward. All production can increase and a new curve represents the possibilities.
| |
| − | | |
| − | Like many fields, it is often helpful for the student to find something easy to understand and then relate difficult ideas to that concept. Which concept are you most comfortable with? Perfect competition? Elasticity? MR=MC? Monopolies? In perfect competition, economic profits are squeezed to zero. P=MC. P=ATC. From there, you can understand monopolies better. A monopoly must be something other than perfect competition. Economic profits are greater than zero; economic rent exists. P>MC. P>ATC. But in both competition and monopolies, MR=MC. | |
| − | | |
| − | Other topics for review: monopolies, monopolistic competition, imperfect competition, and perfect competition. Only in perfect competition is the price of the good sold at its very lowest, P=MC. In all other markets, P can be greater than MC. There are a significant number of questions on the exams about these different types of markets, and they are worth reviewing in prior lectures.
| |
| − | | |
| − | Here is a final puzzle to leave you with. What is the impact on quantity of a price ceiling in a competitive industry compared to a price ceiling in a monopoly? If you can answer that correctly, then you have gone a long way to mastering this material. Hint: In which one (competitive v. monopoly) can a clever price ceiling actually increase quantity? Think about it.
| |
| | | | |
| | == Final Comments == | | == Final Comments == |