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TOBIN'S Q: A financial measure of a firm's returns, calculated by dividing the market value of the firm (that is, the market value of its outstanding stock and debt) by the replacement costs of the firm's assets. According to James Tobin of Yale University, Nobel Laureate in Economics in 1981, if this ratio is greater than 1 it means that the firm is earning a rate of return higher than that justified by the costs of its assets. That is, Tobin suggested that the ratio of the market value of a firm to the replacement costs of its assets should be close to 1.

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Lesson 16: Perfect Competition | Unit 4: Long-Run Equilibrium Page: 21 of 28

Topic: Entry And Exit <=PAGE BACK | PAGE NEXT=>

  • One of the key characteristics of perfect competition is perfect resource mobility.

  • The phrase that captures the mobility of resources in a perfectly competitive industry is entry and exit. It works like this:

    • New firms will enter the industry if economic profit is positive.
    • Existing firms in the industry exit if economic profit is negative.
    • Firms will neither enter nor exit an industry if economic profit is zero and all firms earn a normal profit.

  • The movement of firms into and out of the industry guarantees one outcome -- zero economic profit.

  • Zero economic profit is achieved when the market price is equal to average cost -- both short run (SRATC) and long run (LRAC).


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EMPIRICAL

Based on or relating to the collection or analysis of real world data. The term empirical is commonly used as a modifier to provide contrast with theoretical. Whereas theoretical refers to abstract representations, empirical indicates actual real world observations.

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Today, you are likely to spend a great deal of time going from convenience store to convenience store wanting to buy either a remote controlled sports car with an air spoiler or semi-gloss photo paper that works with your neighbor's printer. Be on the lookout for malfunctioning pocket calculators.
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The New York Stock Exchange was established by a group of investors in New York City in 1817 under a buttonwood tree at the end of a little road named Wall Street.
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