Purchase Solution

Economics of energy

Not what you're looking for?

Ask Custom Question

2. How do the concepts of accounting profit and economic profit differ? Why is economic profit smaller than accounting profit? What are the three basic sources of economic profit? Classify each of the following according to those sources:
a. A firm's profit from developing and patenting a new medication that greatly reduces cholesterol and thus diminishes the likelihood of heart disease and stroke.
b. A restaurant's profit that results from construction of a new highway past its door.
c. The profit received by a firm benefiting from an unanticipated change in consumer tastes.

3. Suppose that you hear two people arguing about energy. One says that we are running out of energy. The other counters that we are running out of cheap energy. Explain which person is correct and why.

4. Recall the model of non-renewable resource extraction presented in Figure 15.7. Suppose that a technological breakthrough means that extraction costs will fall in the future (but not in the present). What will this do to future profits and, therefore to current user cost? Will current extraction increase or decrease? Compare this to a situation where future extraction costs remain unchanged but current extraction costs fall. In this situation, does current extraction increase or decrease? Does the firm's behavior make sense in both situations? That is, does its response to the changes in production costs in each case maximize the firm's stream of profits over time?

Purchase this Solution

Solution Summary

economic vs accounting profit; sources of economic profit; economics of energy

Solution Preview

2. Accounting profit occurs whenever revenues exceed expenses. Economic profit is a more subtle term that includes such things as the profit of the next best venture which could have been done instead. Because of the implicit costs in economic profit, it is smaller than accounting profit. The three sources of economic profit are market power (monopoly), innovation, and ...

Purchase this Solution

Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.