List three primary ways in which profits above "normal" interest rate levels can be earned
1 . Monopoly power: If a firm can establish a monopoly with some or all of its products, even for a short while, it can use that monopoly power to earn monopoly profits.
2 . Risk bearing: Firms often engage in financially risky activities, subjecting the capitalist investors in the firm to some financial peril. The extra income pays the firm for bearing risk. A few lucky individuals make out well in this process, but many suffer heavy losses.
3 . Returns to innovation: This is perhaps the most important of all for social welfare. People who introduce new outputs or new production methods or find new markets for the commodities that the firm sells are called innovative entrepreneurs. The first entrepreneur able to innovate and market a desirable new product or employ a new cost-saving machine will garner a higher profit than what an uninnovative business manager would earn.
You might also like to view...
Valerie prefers A to B and she prefers B to C. If Valerie's preferences are transitive, then she prefers A to C
a. True b. False Indicate whether the statement is true or false
In a competitive market the current price is $6 . The typical firm in the market has ATC = $5.00 and AVC = $4.50
a. In the short run firms will shut down, and in the long run firms will leave the market. b. In the short run firms will continue to operate, but in the long run firms will leave the market. c. New firms will likely enter this market to capture some of the economic profits. d. The firm will earn zero profits in both the short run and long run.
If an economy experiences constant opportunity costs with respect to two goods, then the production possibilities curve between the two goods will be?
A. Bowed inward or convex from below. B. Bowed outward until the two goods are equal, and then bowed inward. C. Bowed outward or concave from below. D. A straight, downward-sloping line.
The IS curve becomes steeper when
A) government spending is relatively small. B) the income tax rate in the current period is relatively small. C) current changes in the real interest rate cause large changes in current real output. D) changes in the current real interest rate cause small changes in current demand. E) none of the above