Output and Costs, ch. 9 - Output and Costs, ch. 9 I....

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Output and Costs, ch. 9 I. Decision time Frames a. Short Run 1. Time frame which quantity of at least one factor of production is fixed 2. To increase output, firm must increase quantity of variable factor of production (labor) 3. Easily reversed b. Long Run 1. Time frame which quantities of all factors of production can be varied 2. Not easily reversed 3. Sunk cost a. Past expenditure on plant that has no resale value II. Economic Profit vs. Accounting Profit 1. Accounting profit a. Difference between revenues and explicit cost, explicit cost refer to firm’s monetary expense b. Focuses only on firm’s ability to pay off its expenses 2. Economic profit a. Difference between revenues and economic cost (explicit and implicit costs) b. Identifies whether firm is earning more or less than it could earn if firm’s resources were used elsewhere b. More Implicit Costs and Benefits 1. Implicit benefits and implicit costs determined by entrepreneur’s alternatives and preferences III. Short-Run technology Constraint 1. Relationship between output and quantity of labor by three concepts: a. Total product b. Marginal product c. Average product b. Product Schedules 1. Total product a. Maximum output that given quantity of labor can produce 2. Marginal product a. Increase in total product that results from one-unit increase in quantity of labor employed with all other inputs remaining the same
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3. Average product
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This note was uploaded on 05/06/2009 for the course MGMT 25100 taught by Professor Blanchard during the Spring '09 term at Purdue University-West Lafayette.

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Output and Costs, ch. 9 - Output and Costs, ch. 9 I....

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