A profit and loss report is based on the calculation of profit (loss). C. have no influence on the composition of domestic output. Does maximizing profit (producing where MR = MC) imply an actual economic profit? D. equalize the distribution of income in the long run. Average cost in this example is average total cost (ATC). Economic profits and losses: A. are both considered by economists to be a part of production costs. B. are essential to the reallocation of resources from less desired to more desired goods. Are profits bad? C) contribute to a more equal distribution of income. B) achieve full employment and price level stability. Unfortunately, they lack an understanding of the formation and function of profits and losses in a free market economy. Why? 36. D) reallocate resources from less desired to more desired uses. Accounting Profit: How to Calculate. B. are essential to the reallocation of resources from less desired to more desired goods. – 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 Recall from previous lectures that firms use their average cost (AC) to determine profitability. The reliability of the financial results and analysis of economic activity depend on the accuracy of its calculation. D. equalize the distribution of income in the long run. 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. 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). Most people have strong feelings about these questions. 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. Many economic issues concern profit and loss. 3. Why? How do you feel about business profits and losses? He actually sustains an economic loss of $9,000. 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 Accounting profit is one of the critical indicators. C. have no influence on the composition of domestic output. 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