Chapter 8 The Costs of Production

Chapter 8 The Costs of Production - Chapter 8 The Costs of...

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Chapter 8 The Costs of Production The measure of the economic cost or opportunity cost of any resource used to produce a good is the value or worth the resource would have in its best alternative use Economic costs are the payments a firm must make to attract the resources it needs away from alternative production opportunities Those payments to resource suppliers are explicit (revealed and expressed) or implicit (present but not obvious o Firms incur explicit and implicit costs o Explicit costs- are the monetary payments (or cash expenditures) it makes to those who supply labor services, materials, fuel, transportation services, and the life. Such money payments are for the use of resources owned by others o Implicit costs- are the opportunity costs of used its self owned, self employed resources. To the firm implicit costs are the money payments that self-employed resources could have earned in their best alternative use o Normal profit - the payment you could otherwise receive for performing entrepreneurial functions is indeed an implicit cost Accounting profit, is the firms total revenue less its explicit costs Economic profit is total revenue less economic costs (explicit and implicit costs, the latter including normal profit to entrepreneur) Economic profit= total revenue- economic cost Easily adjusted costs- hourly labor, raw materials, fuel, and power
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This note was uploaded on 10/05/2008 for the course ECON 203 taught by Professor Al-sabea during the Spring '05 term at USC.

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Chapter 8 The Costs of Production - Chapter 8 The Costs of...

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