ENDURING UNDERSTANDING

CBA-2
To determine the optimal level at which to pursue an activity whose total benefits exceed total cost, rational economic agents compare marginal benefits and marginal costs.

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE
  • CBA-2.C
    a. Define the different types of profit.
    b. Explain how firms respond to profit opportunities.
    c. Calculate a firm’s profit or loss.
ESSENTIAL KNOWLEDGE
  • CBA-2.C.1
    Firms respond to economic profit (loss) rather than accounting profit.
  • CBA-2.C.2
    Accounting profit fails to account for implicit costs (such as cost of financial capital, compensation for risk, or an entrepreneur’s time), which, if fully compensated, result in normal profit.