Central Role of Economic Profit
You may be aware that there are three types of profit: accounting profit, economic profit, and normal profit. The difference between the total revenue and the sum of the explicit and implicit costs of an organization results in economic profit. It is commonly assumed that every firm’s goal is to maximize its profit, and the economic theory of business is built on this underlying assumption.
Consider a theater that has seating for 1,200 people. For the past several days, the show has been sold out. Tickets currently cost $5, but the owner wants to increase the ticket price. An increase in price will probably lead to lower attendance. What will that do to profit margins? In this Discussion, you will explore the impact of a change in the total output of goods and services on other economic factors.
Based on your reading for this week:
Estimate how average, total, and marginal costs change as the output of a good or service of your choice increases. Can economies of scale be maintained despite high start-up costs? When can diseconomies of scale be expected? Are marginal costs high or low relative to the average total costs?
With these thoughts in mind:
Post a brief statement by Day 4 that expresses your thoughts.
Read a selection of your colleagues’ postings.