chp7_sum - CHAPTER 7 THE PRODUCTION PROCESS THE BEHVIOR OF...

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CHAPTER 7 THE PRODUCTION PROCESS: THE BEHVIOR OF PROFIT MAXIMIZING FIRMS Profits & Economic Costs Profit = Total Revenue - Cost= (Price* Quantity) – Cost The term profit will from here on refer to economic profit . So whenever we say profit we really mean: Economic Profit = Total Revenue - Economic Costs Economic Cost: includes both out-of-pocket costs and the opportunity cost. For example, the economic cost of purchasing a car its price, say $20,000 plus opportunity cost. Opportunity cost include forgone interest or dividend revenue that the $20,000 could have earned in a savings account or other investment. Short-run versus Long-run Decisions Short run: a period of production during which some inputs cannot be varied. The fixed inputs include buildings, large equipment, etc. Long run: a period of production that gives managers adequate time to vary all the inputs used to produce a good. In the long run, there are no fixed inputs. Production
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This note was uploaded on 03/27/2009 for the course EC Ec201 taught by Professor Koksal during the Spring '07 term at N.C. State.

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chp7_sum - CHAPTER 7 THE PRODUCTION PROCESS THE BEHVIOR OF...

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