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All Flashcards

How might a tax on accounting profits affect a firm's investment decisions?
It might reduce investment, as the after-tax return on investment decreases.
How might subsidies impact firms experiencing economic losses?
Subsidies can help firms cover their costs and remain in the market, even with economic losses.
How could government regulation impact a firm's implicit costs?
Regulations that limit business activities can increase implicit costs by restricting alternative uses of resources.
What is the potential impact of price ceilings on firm profitability?
Price ceilings can reduce total revenue and potentially lead to economic losses for firms.
How might a minimum wage law affect firms' explicit costs?
A minimum wage law increases firms' explicit costs in the form of higher wage expenses.
How can intellectual property rights affect supernormal profits?
Intellectual property rights, like patents, can allow firms to maintain supernormal profits by limiting competition.
How do environmental regulations affect a firm's costs?
Environmental regulations can increase a firm's explicit costs through required investments in pollution control equipment and compliance measures.
How might trade policies, such as tariffs, affect a firm's profitability?
Tariffs can increase the cost of imported inputs, reducing profitability, or protect domestic firms, increasing profitability.
How can government subsidies for research and development (R&D) affect a firm's long-term profitability?
Subsidies for R&D can lead to innovation and new products, potentially increasing long-term profitability.
What is the impact of corporate tax cuts on economic profit?
Corporate tax cuts can increase economic profit by reducing the explicit costs associated with taxes.
What is the key difference between accounting and economic profit?
Economic profit includes implicit costs, while accounting profit does not.
How do normal profit and economic profit differ?
Normal profit means economic profit is zero; economic profit can be positive, negative, or zero.
Compare explicit and implicit costs.
Explicit costs are out-of-pocket expenses; implicit costs are opportunity costs.
What is the difference between economic loss and normal profit?
Economic loss means total costs exceed total revenue; normal profit means economic profit is zero.
How does supernormal profit differ from normal profit?
Supernormal profit is profit above normal profit, indicating economic profit is positive.
Differentiate between accounting profit and cash flow.
Accounting profit is a measure of profitability, while cash flow tracks the movement of cash in and out of a business.
Compare economic profit in the short run versus the long run.
Firms can experience supernormal economic profit in the short run, but in perfectly competitive markets, this is unsustainable in the long run.
How do fixed costs differ from implicit costs?
Fixed costs are costs that do not vary with output, while implicit costs are opportunity costs of using resources.
What's the difference between revenue and economic profit?
Revenue is the total income from sales, while economic profit is revenue minus all explicit and implicit costs.
How does the concept of economic rent relate to supernormal profit?
Economic rent is similar to supernormal profit, representing earnings above what is required to keep a resource employed in its current use.
What is Accounting Profit?
Total revenue minus explicit costs.
What are Explicit Costs?
Out-of-pocket expenses, like wages and rent.
What is Economic Profit?
Accounting profit minus implicit costs.
What are Implicit Costs?
Opportunity costs of using resources.
What is Normal Profit?
When economic profit is zero.
What is Economic Loss?
When total costs exceed total revenue.
What is Supernormal Profit?
Profits greater than normal profit (economic profits).
Define Total Revenue (TR).
The total income a firm generates from selling its products or services.
Define Total Costs (TC).
The sum of all costs a firm incurs in producing its output, including both explicit and implicit costs.
What is the break-even point from an economist's perspective?
The point where a firm makes normal profit.