36. And if profits are bad, are losses good? When you know this fact, his decision to switch careers doesn’t seem like such a good idea. A profit and loss report is based on the calculation of profit (loss). 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). Profits and Losses with the Average Cost Curve. The answer depends on firm’s profit margin (or average profit), which is the relationship between price and average total cost. Average cost in this example is average total cost (ATC). B. are essential to the reallocation of resources from less desired to more desired goods. 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. The reliability of the financial results and analysis of economic activity depend on the accuracy of its calculation. Unfortunately, they lack an understanding of the formation and function of profits and losses in a free market economy. C. have no influence on the composition of domestic output. B. are essential to the reallocation of resources from less desired to more desired goods. Accounting profit is one of the critical indicators. C) contribute to a more equal distribution of income. The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a … 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 Economic profits and losses: A. are both considered by economists to be a part of production costs. Why? D. equalize the distribution of income in the long run. Why? Economists like to concentrate on economic profits and losses rather than accounting profits or losses because the economic profits and losses … Responses to Profits and Losses • Will the firm remain in business in the long run? B) achieve full employment and price level stability. D. equalize the distribution of income in the long run. D) reallocate resources from less desired to more desired uses. Economic profits and losses: A. are both considered by economists to be a part of production costs. He actually sustains an economic loss of $9,000. – 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 Accounting Profit: How to Calculate. Most people have strong feelings about these questions. Are profits bad? Economic profits and losses: A. Does maximizing profit (producing where MR = MC) imply an actual economic profit? How do you feel about business profits and losses? 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. 3. Recall from previous lectures that firms use their average cost (AC) to determine profitability. C. have no influence on the composition of domestic output. 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