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NORMAL PROFIT: The opportunity cost of using entrepreneurial abilities in the production of a good, or the profit that could have been received in another business venture. Like the opportunity costs of other resources, normal profit is deducted from revenue to determine economic profit. It is, however, never included as an accounting cost when accounting profit is computed.
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Lesson 23: Factor Market Equilibrium | Unit 3: Perfect Competition
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Page: 13 of 24
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- This diagram sets the stage for analyzing the labor employment decision by a given firm, assuming perfect competition holds.
- The critical question facing the firm is: How many workers should it hire?
- The profit-maximizing decision by the firm is to hire 50 workers at the $10 wage.
- Should the firm hire more workers, profit declines.
- Should the firm hire fewer workers, profit declines.
- The critical conclusion from this analysis is that a firm in a perfect competition factor market employs a factor such that marginal revenue product (MRP) is equal to marginal factor cost (MFC).
- However, because this marginal factor cost (MFC) is equal to the factor price (W) for perfection competition, we have the secondary result that:
- MRP = W
- This is THE condition for efficiency in a factor market.
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PRICE CHANGE, UTILITY ANALYSIS A disruption of consumer equilibrium identified with utility analysis caused by changes in the price of a good, which likely results in a change in the quantities of the goods consumed. The change in the price alters the marginal utility-price ratio and forces a reevaluation of the rule of consumer equilibrium.
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BEIGE MUNDORTLE
[What's This?]
Today, you are likely to spend a great deal of time flipping through the yellow pages wanting to buy either a replacement washer for your kitchen faucet or a stretchable, flexible watch band. Be on the lookout for slightly overweight pizza delivery guys.
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Rosemary, long associated with remembrance, was worn as wreaths by students in ancient Greece during exams.
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"The past is a foreign country; they do things differently there." -- Leslie Poles Hartley, Writer
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TFC
Total Fix Cost
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