Chapter 13

Chapter 13 - Chapter 13 The Costs of Production Total...

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Chapter 13 The Costs of Production
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Total Revenue, Total Cost, and Profit The Firm’s Objective The economic goal of the firm is to maximize profits. Total Revenue The amount a firm receives for the sale of its output. Total Cost The market value of the inputs a firm uses in production.
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Total Revenue, Total Cost, and Profit Profit is the firm’s total revenue minus its total cost. Profit = Total revenue - Total cost
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Costs as Opportunity Costs A firm’s cost of production includes all the opportunity costs of making its output of goods and services. Explicit and Implicit Costs A firm’s cost of production include explicit costs and implicit costs. Explicit costs are input costs that require a direct outlay of money by the firm. Implicit costs are input costs that do not require an outlay of money by the firm.
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Economic Profit vs Accounting Profit Economists measure a firm’s economic profit as total revenue minus total cost, including both explicit and implicit costs. Accountants measure the accounting profit as the firm’s total revenue minus only the firm’s explicit costs.
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Economic Profit vs Accounting Profit When total revenue exceeds both explicit and implicit costs, the firm earns economic profit. Economic profit is smaller than accounting profit.
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Economists versus Accountants Revenue Total opportunity costs How an Economist Views a Firm How an Accountant Views a Firm Revenue Economic profit Implicit costs Explicit costs Explicit costs Accounting profit
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Chapter 13 - Chapter 13 The Costs of Production Total...

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