And if profits are bad, are losses good? Economists like to concentrate on economic profits and losses rather than accounting profits or losses because the economic profits and losses … Accounting profit is one of the critical indicators. D. equalize the distribution of income in the long run. Accounting Profit: How to Calculate. Recall from previous lectures that firms use their average cost (AC) to determine profitability. From society’s point of view the economic function of profits and losses is to: A) promote the equal distribution of real assets and wealth. 3. B. are essential to the reallocation of resources from less desired to more desired goods. C) contribute to a more equal distribution of income. The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a … Does maximizing profit (producing where MR = MC) imply an actual economic profit? A profit and loss report is based on the calculation of profit (loss). Economic profits and losses: A. Are profits bad? Unfortunately, they lack an understanding of the formation and function of profits and losses in a free market economy. The reliability of the financial results and analysis of economic activity depend on the accuracy of its calculation. Average cost in this example is average total cost (ATC). The answer depends on firm’s profit margin (or average profit), which is the relationship between price and average total cost. C. have no influence on the composition of domestic output. Profits and Losses with the Average Cost Curve. – If it covers ALL of its costs • Firms that earn normal profit recover only their opportunity cost • Firms that earn positive economic profit recover more than their opportunity cost • Markets in which firms are earning economic Why? Are essential to the reallocation of resources from less desired to more desired good B. Equalize the distribution of income in the long run C. Are both considered by economist to be a part of production costs D. Have no influence on the composition of domestic output D) reallocate resources from less desired to more desired uses. D. equalize the distribution of income in the long run. B. are essential to the reallocation of resources from less desired to more desired goods. Economic profits and losses: A. are both considered by economists to be a part of production costs. Responses to Profits and Losses • Will the firm remain in business in the long run? Economic profits and losses: A. are both considered by economists to be a part of production costs. When you know this fact, his decision to switch careers doesn’t seem like such a good idea. B) achieve full employment and price level stability. He actually sustains an economic loss of $9,000. C. have no influence on the composition of domestic output. Most people have strong feelings about these questions. Why? 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