ECN607 – Lectureaid_4.2

ECN607 – Lectureaid_4.2 - ECN607 Managerial...

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ECN607 – Managerial Economics Study Aid: lecture 4.2 A key point is that the firm's output decision is based not only on the capacity to produce (i.e., the production function) but also on the costs of production (i.e., the cost functions). Note also that the MC curve always intersects the ATC curve at its lowest point. Accounting Cost and Economic Cost Accounting costs (sometimes referred to as historical costs) refer to the total money spent on the firm's resources. These represent dollar payments, are explicit costs, and appear on the firm's invoices and accounting statements. Opportunity costs or economic costs are implicit costs and represent the value of the next best alternative that was not selected in order to pursue the current venture. Economic costs represent the value of all resources (explicit and implicit) to produce a good or service. For example, if a person has an opportunity to work at a job that pays $40 for an hour of work and instead chooses to watch TV for an hour, then the (explicit) accounting cost of watching TV is $0 (watching TV expends no resource cost). However, the (implicit) opportunity cost is $40 since this is what could have been earned by working.
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This note was uploaded on 08/16/2010 for the course BUS ECON607 taught by Professor Tbd during the Spring '10 term at Grand Canyon.

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ECN607 – Lectureaid_4.2 - ECN607 Managerial...

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