13___Ch_13___Econ_101 - Econ 101 Introduction to...

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  Econ 101 Introduction to Microeconomics Professor Richard V. Burkhauser 13 13 The Costs of Production
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Econ 101 – Professor Burkhauser Key Concepts total revenue, p. 268 total cost, p. 268 profit, p. 268 explicit costs, p. 269 implicit costs, p. 269 economic profit, p. 270 accounting profit, p. 270 production function, p. 272 marginal product, p. 273 diminishing marginal product, p.273 fixed costs, p. 275 variable costs, p. 275 average total cost, p. 276 average fixed cost, p. 276 average variable cost, p. 276 marginal cost, p. 276 efficient scale, p. 278 economies of scale, p. 281 diseconomies of scale, p. 281 constant returns to scale, p. 281 increasing returns to scale, class decreasing returns to scale, class
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Figure 13.1 Economist versus Accountant Revenue Total opportunity costs How an Economist Views a Firm How an Accountant Views a Firm Revenue Economic profit Implicit costs Explicit costs Explicit costs Accounting profit
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Econ 101 – Professor Burkhauser Question 13.1 Economic versus Accounting Costs Joe quits his $10,000 job as a pants presser and opens his own dry cleaning store. His financial report for the past year shows the following: Market value of the shop (beginning and end of the year) $50,000 Sales revenue of the shop $25,000 Operating expenses $5,000 If the market interest rate is 10%, an economist would say his profits were: a. $5,000 b. $10,000 c. $15,000 d. $20,000 e. $25,000
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Econ 101 – Professor Burkhauser Use this information to answer Question 13.2: Bill quits his $20,000 job as a cook and opens his own restaurant. His financial report for the past year shows the following: Market value of the shop $100,000 (beginning and end of the year) Sales revenue of the shop $ 40,000 Operating expenses $ 10,000
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Econ 101 – Professor Burkhauser Question 13.2: Economic versus Accounting Costs If the market rate of interest is 10 percent, an economist would say his profits were: a) $ 0 b) $10,000 c) $20,000 d) $30,000 e) $40,000
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Econ 101 – Professor Burkhauser Question 13.3: Economic versus Accounting Costs Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for, if he is to also maintain his farming business. Farmer
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This note was uploaded on 02/21/2008 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).

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13___Ch_13___Econ_101 - Econ 101 Introduction to...

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