PECh6 - Costs Structure_16-10-18

PECh6 - Costs Structure_16-10-18 - PRINCIPLES OF ECONOMICS...

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PRINCIPLES OF ECONOMICS BURAPHA UNIVERSITY INTERNATIONAL COLLEGE
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CHAPTER VI Costs structure
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STRUCTURE PART I - INTRODUCTION Ch1 INTRODUCTION and THE USE OF GRAPHS IN ECONOMICS Ch2 PRODUCTION POSSIBILITIES, OPPORTUNITY COST PART II - MICROECONOMY Ch3 DEMAND and SUPPLY model Ch4 MARKETS IN ACTION Ch5 PRICE ELASTICITY Ch6 COSTS STRUCTURE Ch7 PERFECT COMPETITION Ch8 MONOPOLY PART III – MACROECONOMY and FISCAL POLICY Ch11 GROSS DOMESTIC PRODUCT Ch13 INFLATION PART IV – MONEY and BANKING INTERNATIONAL Ch18 MONEY and BANKING PART V – INTERNATIONAL ECONOMY Ch21 INTERNATIONAL TRADE and FINANCE
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COSTS STRUCTURE 1)COST AND PROFIT Explicit and implicit costs Economics and Accounting Profit 2)SHORT-RUN PRODUCTION COSTS Short-Run vs. Long-Run The Production Function Marginal Product The Law of Diminishing Returns 3)SHORT-RUN COST FORMULAS Total Cost Average Cost AFC AVC ATC Marginal Cost
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COSTS STRUCTURE 4) LONG-RUN PRODUCTION COSTS Long-Run Average costs 5) DIFFERENT SCALES OF PRODUCTION
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COSTS AND PROFIT A basic assumption in economics is that the motivation for business decisions is profit maximization. We will always assume that this is the only one goal pursuit by managers. We must first understand what profit and costs mean .
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COSTS AND PROFIT EXPLICIT AND IMPLICIT COSTS Economists define the total opportunity cost of a business as the sum of explicit and implicit costs [TOTAL OPPORTUNITY COSTS = EXPLICIT + IMPLICIT COSTS] Explicit costs are the real payments made to non-owners for their resources (ex: wages, rent, materials, insurances, etc.) Implicit costs are the opportunity costs of using resources owned by the firm (interest, salary of owners, etc.)
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COSTS AND PROFIT ECONOMIC and ACCOUNTING PROFIT In everyday use, profit is defined as: PROFIT = TOTAL REVENUES – TOTAL COST (this is accounting profit) Economists define profit as: PROFIT = TOTAL REVENUES – TOTAL OPPORTUNITY COSTS PROFIT = TOTAL REVENUES – (EXPLICIT + IMPLICIT COSTS)
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COSTS AND PROFIT ECONOMIC and ACCOUNTING PROFIT Imagine you work at SF Cineplex and earn 9,000 B per month (108,000 B per year).
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