+Chapter 8 – the cost of production Costs exist because resources are scarce, are productive, and have alternative uses. The measure of the economic cost, or opportunity cost, of any resource used to produce a good is the value or worth the resource would have in its best alternative use. Economic costs are payments a firm must take, or the incomes it must provide, to attract the resources it needs away from alternative production opportunities. Those payments to resource suppliers are explicit (revealed and expressed) or implicit (present but not obvious). • A firm’s explicit costs are the monetary payments (cash) it makes to those who supply labor services, materials, fuel, transportation service. money payments are for the use of resources owned by the others. • A firm’s implicit costs are the opportunity costs of using its self-owned, self-employed resources. It is the money payments that self-employed resources could have earned in their best alternative use. For economists, a firm’s economic costs are the opportunity costs of the resources used, whether
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This document was uploaded on 11/02/2011 for the course ECONOMIC ec 202 at Montgomery.