Quiz6Notes - 3:27:00 PM Industrial organization the study...

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14/10/2007 14:27:00 Industrial organization:  the study of how a firm’s decisions about prices and  quantities depend on the market conditions they face a firms costs are a key determinant of its production and pricing decisions WHAT ARE COSTS?  Total revenue:  the amt a firm receives for the sale of its output Total cost:  the market value of the inputs a firm uses in production Profit:  total revenue minus total cost Explicit costs:  input costs that require an outlay of money by the firm Implicit costs:  input costs that do not require and outlay of money by the firm Economic profit:  total revenue minus total cost, including both explicit and  implicit costs Accounting profit:  total revenue minus total explicit cost TOTAL REVENUE COST AND PROFIT Economists assume that the goal of a firm is profit COSTS AS OPPORTUNITY COSTS Accountants are in charge of keeping track of money flow, thus they ignore  implicit costs Economist do not THE TOTAL COST OF CAPITAL AS AN OPPORTUNITY COST The opportunity cost of the financial capital invested in a business is an  implicit cost bc that money could be in a bank, generating interest ECONOMIC PROFIT VERSUS ACOUNTING PROFIT Accountants view profit as revenue minus explicit costs Economists view profit as revenue minus explicit + implicit costs
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PRODUCTION AND COSTS Production function:  the relationship bw quantity of inputs used to make a good  and the quantity of output of that good Marginal product:
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