ECON20023 T1 2008 Lecture 4

ECON20023 T1 2008 Lecture 4 - ECON20023 ECONOMICS FOR...

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Based on slides from Layton et al ( 1 ECON20023 ECONOMICS FOR BUSINESS T1 2008 LECTURE 4 Galina Ivanova, CQU
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Based on slides from Layton et al ( 2 Key concepts Why is profit maximisation a basic assumption in economics? What is the economic meaning of profit? What is the difference between the short run and the long run? What is the production function? What are the short-run costs? What are the long-run costs? What are scales of production?
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Based on slides from Layton et al ( 3 A basic assumption in economics The motivation for business decisions is profit maximisation. Although economists recognise that firms sometimes pursue other goals, the profit maximisation goal is a powerful way of explaining business behaviour.
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Based on slides from Layton et al ( 4 The economic meaning of profit Unlike accounting profit, economic profit includes implicit costs. Explicit and implicit costs Explicit costs – payments to non-owners of a firm for their resources, e.g. wages, lease payments, cost of materials Implicit costs – the opportunity costs of using resources owned by the firm – the opportunities you have forgone, for example the manager gave up a salary, invested her ‘nest- egg’, etc.
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Based on slides from Layton et al ( 5 Accounting versus economic profit Accounting profit = total revenue minus total explicit costs Economic profit = total revenue minus total opportunity costs Note: total opportunity costs = explicit costs + implicit costs.
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Based on slides from Layton et al ( 6 Normal profit The minimum profit necessary to keep a firm in operation A firm that earns normal profit earns total revenue equal to its total opportunity costs (explicit plus implicit costs).
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Based on slides from Layton et al ( 7 Short-run production costs
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This note was uploaded on 09/06/2009 for the course MGMT econ taught by Professor Galinaivanova during the Spring '09 term at University of Central Arkansas.

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ECON20023 T1 2008 Lecture 4 - ECON20023 ECONOMICS FOR...

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