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Summary CFA-Demand and supply analysis -Eco
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All you need to study for CFA Level 1-Economics -Demand and Supply Analysis chapter.Just do this and the chapter is completely finished
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CFA Level 1 Economics - Demand andSupply Analysis
Accounting profit is actually the profit which is used by accountants to
determine firm 's net income. economic profit will be equal to the total
revenue minus total opportunity cost of production. the implicit
opportunity cost is any unearned or nominal profit that the resource
owner did not make from investing in the next best alternative. So this
is the nominal profit which he could have got had he invested in the
best alternative. economic profit is accounting profit which is required
return on equity capital provided by many shareholders, and this is the
accounting profit. when the economic profit is zero. The firm 's
accounting profit is called normal profit. zero economic profit does not
mean that firm is about to go out of business. Instead, it indicates
owners are receiving exactly the amount which they could have gone
somewhere else. a factor of production over and above an amount
which is required to induce that owner to offer that factor for the use
and opportunity cost is that cost, which is the value of factor in its
next best use.. This concept is parallel to the concept of economic
profit in the case of the company..
market forces of demand and supply are going to fix up a price. Since
each unit of output sold by a price taker is sold at the market price.
the marginal revenue of each unit is going to be equal to the price of
the product.. in business, we need to make a decision at times that
whether we should employ more labour or more capital, so that we can
maximize profits.. average fixed cost is nothing but total fixed costs
divided by the number of units which have been produced.. total
variable cost is sum of all those cost that rise as the input as the
output increases, so if we are producing more we have to spend more
so. This is the variable cost. The total variable cost. average total cost
is total cost divided by total product. total cost is summation of total
fixed cost and total. variable cost. variable cost to the total cost when
the quantity is changing now let us understand their behavior. In terms
of graph. average variable cost on an average is coming down after
some time. The average variable cost start coming up on the same
lines. Even the average total cost will start coming down..
When the firm starts producing more and more the average cost keep
coming down and that is called the economies of scale. They are
nothing but the reduction in firms per unit cost, which are associated
with the use of large plants and producing a large volume of output, so
over the initial range of product they will be present. When the longrun
average cost curve is falling. the area where the total revenue is
higher than the total cost is the economic profit otherwise it will be
economic losses. small firms will be facing this economies of scale and
even at the large firm. When the firm gets bigger, then a size of a
usually large firm, then there might be a bureaucratic inefficiency
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