101chapter6 - Chapter 6: Production and Costs economic...

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13:00 Chapter 6: Production and Costs economic costs & profits short run long run
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13:00 13:00 2 big picture understand behavior of firm production costs
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13:00 13:00 3 I. firm’s goal: maximize profit look at factors that affect firm’s decision
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13:00 13:00 4 economic costs opportunity cost of resources used explicit costs paid in money wages, rent, material, etc. implicit costs opportunity cost of resources used
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13:00 13:00 5 example: smoothie shop explicit costs: wages interest on loan rent on store fruit, blenders
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13:00 13:00 6 implicit costs forgone interest on funds used to buy capital owner’s forgone wages owner’s forgone profit from other venture
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13:00 13:00 7 accounting profit total revenue – explicit costs ignores opportunity cost
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13:00 13:00 8 economic profit includes opp. costs = total revenue - total costs = (price)(quantity) - (explicit + implicit costs)
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13:00 13:00 9 normal profit occurs when amount of accounting profit = opportunity costs of resources if earning a normal profit, economic profit = 0
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13:00 13:00 10
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13:00 13:00 11 Short Run vs. Long Run Short Run (SR) time frame where some resources are fixed -- plants, equipment some inputs variable -- labor SR decisions are reversible
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13:00 13:00 12 Long Run (LR)
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This note was uploaded on 07/19/2011 for the course ECON 101 taught by Professor Wood during the Spring '07 term at University of California, Berkeley.

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101chapter6 - Chapter 6: Production and Costs economic...

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