Question

In: Economics

In spite of the fact that firms do not make payments on resources they own, these resources still have and opportunity cost. How is this possible, and how does this affect a firm's efforts to maximize profits?



To participate in the discussion forum, you are expected to:

1) Apply theories from your economics textbook relevant to this question.

2) Provide examples to justify the rationale behind your discussion.

3) Write a minimum of three paragraphs containing a minimum of three sentences each (one paragraph for Part 1 and two paragraphs for Part 2). This is approximately the minimum amount you will need to be able to fulfill the expectations for the discussion. However, it is unlikely that such a response will be able to be of sufficient quality and completeness to achieve full credit.

4) Write a minimum of one paragraph containing a minimum of three sentences for your reply. The reply should directly address what is written in the original post to which you are replying and furthermore meet requirements No. 1 and No. 2 above. (Please note: Responses like "Great post" and "I agree" do not by themselves meet the requirements for a satisfactory reply. Such comments are fine if they are accompanied by other material that meets the standards for the discussion.)


DISCUSSION PART 1: Getting Started

In spite of the fact that firms do not make payments on resources they own, these resources still have and opportunity cost. How is this possible, and how does this affect a firm's efforts to maximize profits?

DISCUSSION PART 2: Digging Deeper

1. Many economists would argue that private companies are likely to be more efficient than the government at operating airlines. Yet many economists would also argue that there is a valid reason for government to regulate the safety of those same airlines. Can you explain why the government might be good at ensuring safety, even though it might not be good at operating the airlines?

2. Is the used car market perfectly competitive? Why or why not?

Solutions

Expert Solution

Answer:Discussion 1

An implicit cost is any cost that has already occurred but not necessarily shown or reported as a separate expense. It represents an opportunity cost .

For example :-For a enterpreneur his time devotion for the firm is not recorded as the expense separately but if he otherwise had worked for other firms he must have earned some money and now by working as enterpreneur he is foregoing the opportunity to earn that income which is the opportunity cost and Firm has its own premise for which no separately rent payment recorded butif it would otherwise has been hired from market it needs to be paid for that should be opportunity cost saving for the firm .

Since these costs are not recorded in the books of the accounts hence the profits is always higher and the profit is maximized as it has not taken into the consideration the opportunity cost of rent and enterpreneurship.

Answer: Discussion 2 Part 1

Economists Claim Government is not good in operating airlines compared with the private companies but on the second side few also accept the fact government ensure security which is far better compared to private airlines operated .The reason is that The Government companies is working on non profit basis the main motive is to provide services even at loss of higher possible quality for that they spent a lot even if their revenue generation is less but private companies motive is to earn so to cut the cost they dont buy adequate safety measures as ultimate profit of same will be o them .for operating it is not good as it is not inspired by earning profit maximum.

Example in india BSNL Company

Answer: Part 2

the used car market perfectly competitive the statement is incorrect .The knowledge of used car is with seller more than any knowledge it could be with buyer but here the entry exit is very esy makes one of the attribute of perfect competitive market .Absence of Large Number of Buyers and Sellers: Homogeneity of the Product: Perfect Knowledge of the Market: ...Perfect Mobility of the Factors of Production and Goods: ...Absence of Price Control: Required in such market whereas everything is absence in used car market makes it clear the market is not perfect competitive ..

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