Comments on Homework I
1. I did not specify what equilibrium concept to present but I was hoping 
that students would present the long-run equilibrium concept under perfect 
competition. That would be that, in long-run equilibrium, each firm in a 
market operates where price is equal to the bottom of the LRATC curve. 
There are no economic profits -- that is, firms are just making normal 
profits. Some students indicated that equilibrium is where supply equals 
demand which is not wrong but SS = DD in the long or short-run. In the 
short-run equilibrium, firms can be making economic profits. This is not 
the case for long-run equilibrium. For the part of the question on 
disequilibrium, it is not sufficient to say that disequilibrium is 
different but how it is different. It is different because adjustments 
will be made in a disequilibrium -- the current state will not remain. 
2. Entrepreneurship is related to disequilibrium. Entrepreneurs are alert 
to "opportunities" which presumably involve potential economic profits in 
disequilibrium states of the world. Key idea: opportunities from technical 
progress and demographic changes are happening all the time which produce 
economic profit potential associated with diequilibrium. Individuals 
differ in the ability to spot these opportunities and to develop them. It 
is argued that these abilities can be enhanced through training, schooling 
and experience. 
3. Economic profit is zero when a firm is making a normal profit. Normal 
profit is the case where total revenues of a firm a just sufficient to 
cover all costs (both explicit and implicit). Not that implicit costs 
involve owner supplied resources which are essentially opportunity costs. 
Also note that when a firm is breaking even, it is just covering both its 
explicit and implicit costs. The opportunity cost component associated 
with implicit costs is included.
4. This question is really related to question 2. When there is a 
disequilibrium, there are positive economic profits. 
5. This question was designed to elicit consideration of what role the 
entrepreneur plays when there is literally long-run equilibrium. Since in 
long-run equilibrium, there are no economic profits, there are no 
entrepreneurial profits. All revenues go to cover explicit costs and such 
things as implicit wages and implicit interest. Presumably implicit wages 
go to cover routine management and not the opportunity discovery process 
associated with entrepreneurship. Implicit interest is the return on the 
owners own funds. So in a world of long-run equilibrium, there does seem 
to be much of a role for the entrepreneur. 

Notes: 1. What are implicit revenues? Did that appear somewhere in the 
readings? 
2. In the adjustment in the long-run to short-run profits, some students 
argued that this adjustment involves the development of new products. But 
this does not happen in pure competition. Competition comes from firms 
producing the same product. This is what the homogeneity assumption means. 
The reference to new products is really part of the second assignment in 
which Schumpetarian competition is distinguished from competition in 
perfect competition.
3. In question 5, some students argued that the entrepreneur is a key to 
bringing about long-run equilibrium in perfect competition. If the 
entrepreneur is correct about an opportunity, her actions will tend to 
squeeze economic profits out in the long-run.