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Unformatted text preview: 13 Book Notes – ECON 201 The Costs of Production WHAT ARE COSTS? 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 Profit: total revenue – total cost Explicit Costs: input costs that require an outlay of money by the firm Implicit Costs: input costs that do not require an outlay of money by the firm Economists use the Explicit and Implicit costs when determining total revenue, whereas the Accountants only use the explicit costs. If you invest say $300,000, you are giving up the implicit cost of $15,000 that could have been made with that money in a savings account this is an implicit cost. Economic Profit: total revenue – total cost (Explicit + Implicit Costs) Accounting Profit: Total Revenue – Total Explicit Cost Every firm’s objective is profit. Accounting profit is usually larger than economic profit A firm making positive economic profit will stay in business. PRODUCTION AND COSTS Production Function: the relationship between quantity of inputs used to make a good and the quantity of output of that...
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This note was uploaded on 10/13/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.
- Spring '10