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D. equalize the distribution of income in the long run. B. are essential to the reallocation of resources from less desired to more desired goods. 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 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. 3. He actually sustains an economic loss of $9,000. Many economic issues concern profit and loss. 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. Economic profits and losses: A. are both considered by economists to be a part of production costs. Accounting profit is one of the critical indicators. C. have no influence on the composition of domestic output. Accounting Profit: How to Calculate. Most people have strong feelings about these questions. Recall from previous lectures that firms use their average cost (AC) to determine profitability. Unfortunately, they lack an understanding of the formation and function of profits and losses in a free market economy. Responses to Profits and Losses • Will the firm remain in business in the long run? D. equalize the distribution of income in the long run. When you know this fact, his decision to switch careers doesn’t seem like such a good idea. A monopolist calculates its profit or loss by using its average cost (AC) curve to determine its production costs and then subtracting that number from total revenue (TR). C. have no influence on the composition of domestic output. Why? Economic profits and losses: A. And if profits are bad, are losses good? Economists like to concentrate on economic profits and losses rather than accounting profits or losses because the economic profits and losses … – 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 Are profits bad? B) achieve full employment and price level stability. Average cost in this example is average total cost (ATC). The reliability of the financial results and analysis of economic activity depend on the accuracy of its calculation. Economic profits and losses: A. are both considered by economists to be a part of production costs. D) reallocate resources from less desired to more desired uses. C) contribute to a more equal distribution of income. A profit and loss report is based on the calculation of profit (loss). 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