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Unformatted text preview: Microeconomics Chapter 13 The Costs of Production Introduction Industrial organization – the study of how firms decisions about prices and quantities depend on the market conditions they face 13-1a Total Revenue, Total Cost, and Profit Economists normally assume that the goal of a firm is to maximize profit, and they find that this assumption works well in most cases The amount that the firm receives for the sale of its output is called its total revenue The amount that the firm pays to buy inputs is called its total cost Profit is a firms total revenue minus its total cost 13-1b Costs as Opportunity Costs Recall that the opportunity costs of an item refers to all those things that must be forgone to acquire that item Because these opportunity costs require the firm to pay out some money, they are called explicit costs By contrast, some of a firms opportunity costs, called implicit costs , do not require a cash outlay 13-1c The Cost of Capital as an Opportunity Cost An important implicit cost of almost every business is the opportunity cost of the financial capital that has been invested in the business 13-1d Economic Profit versus Accounting Profit An economist measures a firms economic profit as the firms total revenue minus all the opportunity costs of producing the goods and services sold...
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This note was uploaded on 09/27/2011 for the course ECON 101 taught by Professor Baggins during the Spring '08 term at Manhattan College.
- Spring '08