Ss_W04_T04_lecture(1in1)(b) - Reading Assignment Chapter 13 Indicative contents 1 Economic and accounting profit 2 Firm as a production unit 3 Decision

Ss_W04_T04_lecture(1in1)(b) - Reading Assignment Chapter 13...

This preview shows page 1 - 7 out of 30 pages.

1 Reading Assignment: Chapter 13 Indicative contents 1. Economic and accounting profit. 2. Firm as a production unit. 3. Decision time frames for a firm: Short run and long run. 4. Production function. 5. Nature of production cost. After studying this topic, you will be able to: 1 Explain and distinguish between the economic and accounting measures of a firms cost of production and profit. 2 Explain the relationship between a firms output and labor employed in the short run. 3 Explain the relationship between a firms output and costs in the short run. 4 Derive and explain a firms long-run average cost curve.
Background image
2 13.1 ECONOMIC COST AND PROFIT The Firms Goal To maximize profit (Economists have a special way of defining and measuring cost and profit.) Accounting Cost and Profit An accountant measures cost and profit to ensure that the firm pays the correct amount of income tax and to show the bank how the firm has used its bank loan. Economists predict the decisions that a firm makes to maximize its profit. These decisions respond to opportunity costand economic profit. Opportunity Cost The highest-valued alternative forgone is the opportunity cost of a firms production. This opportunity cost is the amount that the firm must pay the owners of the factors of production it employs to attract them from their best alternative use. So a firms opportunity cost of production is the cost of the factors of production it employs.
Background image
3 13.1 ECONOMIC COST AND PROFIT Explicit Costs and Implicit CostsAnexplicit costis a cost paid in money.Animplicit costis an opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment. The two main implicit costs are economic depreciation and the cost of using the firm owners resources. Economic depreciationis an opportunity cost of a firm using capital that it ownsmeasured as the change in the marketvalue of capital over a given period. Normal profitis the return to entrepreneurship. Normal profit is part of a firms opportunity cost because it is the cost of the entrepreneur not running another firm.
Background image
4 13.1 ECONOMIC COST AND PROFIT Economic Profit A firms economic profitequals total revenue minus total cost. Total cost is the sum of the explicit costs and implicit costs and is the opportunity cost of production. Because the firms implicit costs is normal profit, the return to the entrepreneur equals normal profit plus economic profit. If a firm incurs an economic loss, the entrepreneur receives less than normal profit.
Background image
5 13.1 ECONOMIC COST AND PROFIT
Background image
6 13.1 ECONOMIC COST AND PROFIT Accountants measure cost as the sum of explicit costs and accounting depreciation.
Background image
Image of page 7

You've reached the end of your free preview.

Want to read all 30 pages?

  • Fall '15
  • pikachu

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes