Class Lecture #42 - 12/12

The final lecture in ECO 108!!! A lot of this lecture was spent discussing the potential profits of an entrepreneur.

Profits = Total revenues - Total costs
 - total costs: explicit (accounting profits) and implicit (economic profits)

If Rachel decides to start a pizza business, what does she gain and what does she give up?
 - she previously had a $30K and owned a building that rents for $6K
 - savings acct. of $23,000 at 10% interest
 - start business.... quits job, uses building, cashes out savings and borrows $20K
 - Profits = Total revenues - Total costs
     -> revenues = $85,000
     -> Costs:
            * explicit = -23,000 - 20,000 - (2,000)
            * implicit = -6,000 - 30,000 - (2,300) .... opportunity costs
 - Economic Profit = $1,700

Economic Profits
 - if economic profit > $0, should do it
 - how much better you are being an entrepreneur
 - your services more valuable to society than other things
 - only exist if there's uncertainty


Capitalism
 - positive profits means you're doing something right
 - negative profits means you should switch what you're doing --> incnetivizes people to do something else that's actually beneficial to society