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ACCOUNTING PROFIT: The difference between a business's revenue and it's accounting expenses. This is the profit that's listed on a company's balance sheet, appears periodically in the financial sector of the newspaper, and is reported to the Internal Revenue Service for tax purposes. It frequently has little relationship to a company's economic profit because of the difference between accounting expense and the opportunity cost of production. Some accounting expense is not an opportunity cost and some opportunity cost is does not show up as an accounting expenses.

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Lesson 23: Factor Market Equilibrium | Unit 4: Monopsony Page: 18 of 24

Topic: Efficiency <=PAGE BACK | PAGE NEXT=>

  • The primary condition for profit-maximization AND efficiency derived from the analysis of the firm's labor employment is:

  • MRP = MFC > W
  • As such, marginal revenue product (MRP) is also greater than the factor price (W).

  • This means the market is NOT efficient.

  • Consider the profit-maximizing employment of labor services illustrated in this diagram.

  • Clearly wage paid in monopsony is lower and the quantity of factor services employed is less.

  • The conclusion is that monopsony, like it's selling counterpart monopoly, is NOT efficient.


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AGGREGATE SUPPLY DECREASE, SHORT-RUN AGGREGATE MARKET

A shock to the short-run aggregate market caused by a decrease in aggregate supply, resulting in and illustrated by a leftward shift of the short-run aggregate supply curve. A decrease in aggregate supply in the short-run aggregate market results in an increase in the price level and a decrease in real production. The level of real production resulting from the shock can be greater or less than full-employment real production.

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Today, you are likely to spend a great deal of time flipping through the yellow pages trying to buy either a velvet painting of Elvis Presley or a wall poster commemorating yesterday. Be on the lookout for the last item on a shelf.
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The penny is the only coin minted by the U.S. government in which the "face" on the head looks to the right. All others face left.
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MPP
Marginal Physical Product
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