Microeconomics Ch. 6-9

A 10% drop in price of Peanut Butter causes an 8% rise in quantity of jelly. What is the cross-price elasticity?

.8 (8%/-10%)

A 10% drop in price of OJ causes a 5% drop in quantity of grapefruit juice. What is the cross-price elasticity?

2 (-10%/-5%)

The stems from the differences in how costs are calculated. Accountants include _____, while economists include _____

Accountants include only explicit costs while economists include both implicit & explicit costs

What is the primary difference between economic profit and accounting profit?

Accounting profits ignore implicit costs; economic profits consider them.

Russ owns a fried chicken stand that operates at the local beach. In calculating how much he earns from his business, Russ notices a difference between his economic and accounting profits. Why would Russ' economic profit differ from his accounting profit?

He may have implicit costs associated with operating the chicken stand in addition to explicit costs.

Economic Profit

Revenue - Cost (explicit + deprecication + opportunity cost

capital gain

difference between the price an investor initially pays for an asset and the price they receive when selling an asset

Economic cost

explicit cost + implicit cost

Economic profit is typically

less than accounting profit by the amount of implicit cost

Accounting profit

revenue - cost (explicit and depreciation)

Accounting costs

the accounting statement of the firm incurred in the process of production

In the short run, perfectly (or purely) competitive firms will maximize their profit by producing

the quantity where marginal revenue = marginal cost & the quantity where price equals marginal cost.