10-16 lecture notes

10-16 lecture notes - this value and eventually alienates...

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Profit- total revenue minus total cost TR- PxQ TC- Explicit cost plus implicit cost Explicit costs are anything on an accountant’s books, income statements Implicit costs are any other hidden costs not included, opportunity costs of owner’s own resources that s/he uses in the business TR=$90,000, EC=$40,000, IC=$30,000 Accounting profit=$50,000, Economic profit=$20,000 Ethical question- my business makes $20,000, should that money belong to me? Yes, but I have been compensated for my resources with my implicit costs, but according to our system I am allowed to walk away with it. But why should I pocket this value alone? This is why many companies give bonuses throughout the year, but the money given out was created by the workers anyway and so it still often becomes unfair Give stock options because it makes workers feel like part owners, this also promotes harder work and watching each other The $20,000 leftover is known as surplus value (Karl Marx) When the capitalist gets a taste of the surplus value then he attempts to maximize
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Unformatted text preview: this value and eventually alienates the worker TC= TFC plus TVC TFC- total fixed cost, the same cost no matter how many of each product is produced TVC- total variable cost, the cost differs depending on how many of each product is produces Q TFC TVC TC MC P TR MR Profit 100 100-160---100 1 100 100 200 100 160 160 160-40 2 100 180 280 80 160 320 160 40 3 100 280 380 100 160 480 160 100 4 100 400 500 120 160 640 160 140 5 100 540 640 140 160 800 160 160 6 100 700 800 160 160 960 160 160 7 100 880 980 180 160 1120 160 140 8 100 1180 1280 200 160 1280 160 100 If avg revenue (price) is constant, then MR=AR Rational firms who wants to maximize profits will choose the situation where MR=MC and then profits will be the highest A profit maximizing firm in the short run should produce where MR=MC even if it is losing money provided the loss is equal to or less than the fixed cost...
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