note1 - ch 9 - Econ 251 Fall 09 Handout 14 10/06/10 Chapter...

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Econ 251 Fall 09 Handout 14 10/06/10 1 Chapter 9 – Profit, production and Costs 1. Economic Profit vs. Accounting Profit Firm’s objective: We distinguish between two concepts of Profit: 1. Accounting Profit = 2. Economic Profit = Example: Accounting profit for the catering company is ______________________________. Now, suppose that the owner’s best alternative to owning the catering company is working as Hotel Manager for $ 600,000 per year. Economic profit equals ______________________________________ . Table 1. Catering Company Revenues and Costs Annual Sales Revenues $2,000,000 Wages $750,000 Food expenses $250,000 Rental payments for office space $350,000 Rental payments for equipment $150,000 Total Costs
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Econ 251 Fall 09 Handout 14 10/06/10 2 2. Production Short-run A firm decides how much to produce and so how much to use of its productive factors. However, decisions are different depending on the horizon they are taken on . In the long run
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note1 - ch 9 - Econ 251 Fall 09 Handout 14 10/06/10 Chapter...

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