TAILIEUCHUNG - Lecture Principles of microeconomics - Chapter 8: The quest for profit and the invisible hand

This chapter introduces you to the concepts of economic, accounting and normal profits. It also looks at why perfectly competitive markets are efficient, and why easy entry to and exit from markets is important in perfect competition. | The Quest for Profit and The Invisible Hand Slide 8 - What is Chapter 8 about? Slide 8 - I. The Central Role of Economic Profit Slide 8 - Adam Smith Self-interest implies capitalists exploit profit opportunities Entrepreneur “intends only his own gain,” yet he is “led by an invisible hand to promote an end which was no part of his intentions” “Invisible Hand” = market competition Slide 8 - Profits & Costs Explicit Costs Actual payments made to factors of production (labour & capital) and other input suppliers Implicit Costs the opportunity costs of all the resources supplied by the firm’s owners Opportunity cost of time supplied by owner Opportunity cost of capital supplied by owner Opportunity cost of inputs supplied by owner Slide 8 - Three Types of Profit Accounting Profit Total Revenue – Explicit Costs Economic Profit (Excess Profit) Total Revenue – (Explicit Costs + Implicit Costs) Can be called ‘excess’ because it exceeds returns necessary to attract .

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