CHAPTER 10 - CHAPTER 10: ORGANIZING PRODUCTION 1) The firm...

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CHAPTER 10: ORGANIZING PRODUCTION 1) The firm and its economic problem a) Firm-an institution that hires factors of production and organizes those factors to produce and sell goods and services b) A firm’s goal is to maximize profit. b.i)A firm that does not seek to maximize profits will be eliminated or bought out c) Economist measure a firms profit to enable them to predict firm’s decisions c.i) Economic profit- equal to the TR-Ttl Cost, w/ ttl cost measured as the opportunity cost of production d) Opportunity cost- highest valued alternative forgone e) Opportunity cost of production-value of the best alternative use of the resources that a firm uses in production e.i) Sum of the costs of using resources: (e.i.1) Resources bought in the market- explicit costs (e.i.2) Using it’s own capital- implicit costs (e.i.2.a) Implicit rental rate- opportunity cost of using the capital it owns (e.i.2.b) Economic depreciation- the fall in the market value of a firm’s capital over a given period (market price at the beginning-market price at the end) (e.i.2.c) Interest forgone- funds used to buy capital that could have been invested and earned interest 2) Firm’s constraints a) Technology- any method of producing a good or service a.i) Increase in profit that a firm can achieve is limited by the technology available
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This note was uploaded on 11/14/2011 for the course ECO 201 taught by Professor Dunlevy during the Fall '08 term at Miami University.

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CHAPTER 10 - CHAPTER 10: ORGANIZING PRODUCTION 1) The firm...

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