Chapter 13.docx - Chapter 13 The Costs of Production 13A You open up a souvenir shop which exclusively sells keychains You hope to slay in business and

Chapter 13.docx - Chapter 13 The Costs of Production 13A...

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Chapter 13 – The Costs of Production 13A You open up a souvenir shop which exclusively sells keychains You hope to slay in business and in order to do so will need to make a profit Review of terms (accounting perspective) o Totally revenue - $ sold x price received item The amount of money received for a firm's output o Total cost - # made x price spent per item The amount of money spent for a firm's input o Profit = total revenue – total cost Receiving more money than spent Complication of cost from economics perspective o How to measure cost? o The "easy" accounting way is just to measure explicit cost Explicit costs – expenses that can be measured by money spent Ex) plastic, meatal, labor o The "hard" economics way is to include opportunity costs (explicit and implicit costs) Implicit costs – expenses that one tries to determine a monetary value for, costs that don't involve money spent Ex) time, effort, unhappiness o Accounting profit = total revenue – explicit costs o Economic profit = total revenue - (explicit costs + implicit costs) o Accounting profit > or = economic profits (mathematical) o Accounting profit > economic profits (economic) The souvenir company is popular and wants to grow business and hires teenagers over the summer In general, the more people the company hires that more output the company can produce In general, the first handful of people can each produce a lot (specialization) o
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  • Fall '17
  • Eric Libicki
  • Economics, Chapter 13, Matilda’s Store

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