Ch 13 outline - Chapter 13 outline I What Are Costs A Total...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 13 outline: I. What Are Costs? A. Total Revenue, Total Cost, and Profit 1. Goal of a firm: to maximize profit. 2. Definition of  total revenue : the amount a firm receives for the sale of  its output. 3. Definition of  total cost : the market value of the inputs a firm uses in  production. 4. Definition of  profit : total revenue minus total cost. B. Costs as Opportunity Costs 1. Principle #2: The cost of something is what you give up to get it. 2. The costs of producing an item must include all of the opportunity costs  of inputs used in production. 3. Total opportunity costs include both implicit and explicit costs. a. Definition of  explicit costs : input costs that require an outlay  of money by the firm . b. Definition of  implicit costs : input costs that do not require an  outlay of money by the firm . c. This is the major way in which accountants and economists differ  in analyzing the performance of a company. d. Accountants focus on only explicit costs, while economists  examine both explicit and implicit costs. C. The Cost of Capital as an Opportunity Cost Profit  =  Total Revenue  -  Total Cost Total Revenue  =  Price   Quantity
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
1. The opportunity cost of financial capital is an important cost to include in  any analysis of firm performance. D. Economic Profit Versus Accounting Profit 1. Figure 1 shows the difference in the ways in which economists and  accountants calculate profit. 2. Definition of  economic profit : total revenue minus total cost,  including both explicit and implicit costs . 3. Definition of  accounting profit : total revenue minus total explicit  cost . 4. If implicit costs are greater than zero, accounting profit will always  exceed economic profit. II. Production and Costs A. The Production Function 1. Definition of  production function : the relationship between quantity  of inputs used to make a good and the quantity of output of that  good.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 8

Ch 13 outline - Chapter 13 outline I What Are Costs A Total...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online