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Unformatted text preview: selling a good or service o Objective = make money(maximize profit) INDUSTRY is a group of firms operating in same market PROFIT = TR TC TWO MEASURES OF COST 1. EXPLICIT COSTS are costs that are easy to see (ex. Land) a. Require and outflow of money 2. IMPLICIT COSTS are the opportunity cost of the owners resources. a. Do not require a cash payment Wednesday, November 01, 2006 EXAMPLE TR = $200,000 Labor cost = $70,000 Explicit Cost Raw materials = $30,000 Opportunity cost of the owners time = $50,000 Opportunity cost of using the building = $40,000 Implicit Cost Opportunity cost of owners starting funds = $10,000 $200,000 $70,000- $30,000 $100,000 Accounting Profit (only Includes Explicit Costs) $50,000 $40,000- $10,000 Economic Profit (considers Explicit and Implicit Costs) ECONOMIC PROFIT = 0 Normal Profit Owner is doing just as well as he could if he were to pursue his next best opportunity...
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