Chapter 13 Lecture Outline(2) - Economics 101H Vandan Desai...

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Economics 101H Vandan Desai P a g e | 1 Chapter 13: The Costs of Production (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- I. What are Costs? A. According to the Law of Supply: i. Firms are willing to produce and sell a greater quantity of good when the price of a good is high ii. This results in a supply curve that slopes upward B. The Firm’s Objective: The economic goal of the firm is to maximize profits C. Total Revenue i. Amount a firm receives for the sale of its output ii. Quantity of output the firm produces X price at which it sells its output D. Total Cost —market value of the inputs a firm uses in production E. Profit —the firm’s total revenue minus its total cost ( Total Revenue Total Cost ) F. A firm’s cost of production includes all the opportunity cost of making its output of goods and services G. Explicit and Implicit Costs i. Firm’s cost of production include explicit costs and implicit costs ii. Explicit Costs—input costs that require a direct outlay of money by the firm iii. Implicit Costs—input costs that do not require an outlay of money by the firm H. Economists include both costs when measuring a firm’s total costs i. Count the forgone income as a cost b/c it affects Helen’s decisions ii. Ex: shutting down the business when opportunity costs rise iii. Views $15,000 interest income part of cost of business even though implicit
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Chapter 13 Lecture Outline(2) - Economics 101H Vandan Desai...

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