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Chapter_9 - Chapter 9 PRODUCTION AND COST ANALYSIS I Todays...

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PRODUCTION AND COST ANALYSIS I Chapter 9 Chapter 9
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Today’s lecture will: Differentiate economic profit from accounting profit. Distinguish between long-run and short-run production. Introduce the law of diminishing marginal productivity. Calculate fixed costs, variable costs, marginal costs, total costs, average fixed costs, average variable costs, and average total costs.
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The Supply Process In the supply process, people first offer their factors of production to the market. Firms transform the factors into goods that consumers want. Production is the transformation of factors into goods.
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The Role of the Firm The firm is an economic institution that transforms factors of production into consumer goods. It: Organizes factors of production. Produces and sells goods and services. Why firms produce and sell the goods?
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Firms Maximize Profit Profit = total revenue – total cost Economists and accountants measure profit differently. Accountants focus on explicit costs and revenues. Economists focus on both explicit and implicit costs and revenue.
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Explicit and Implicit Revenue If a firm sells 1,000 pieces ice-creams at $2 each, the total revenue is: $2 x1,000=$2,000---- explicit revenue Say the firm owns a store whose market value rise from $2,000 to $3,000. Such increase in the value of assets is called implicit revenue.
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Explicit and Implicit Cost For an accountant, total costs are the wage paid to labor, rent paid to owners of capital, interest paid to lenders, and actual payments to other factors of production. If the firm paid $500 to employees and $500 for the materials, total costs is: $500+$500=$1,000--- explicit cost
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Explicit and Implicit Cost Implicit costs include the opportunity costs of the factors of production provided by the owners of the business. If the owner of the firm could have earned
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This note was uploaded on 12/09/2009 for the course ECON 2030 taught by Professor Bong during the Spring '07 term at LSU.

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Chapter_9 - Chapter 9 PRODUCTION AND COST ANALYSIS I Todays...

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