Chp3 - Chapter 3 Chapter The Firm Makes Choices: Costs &...

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    Chapter 3 Chapter 3 The Firm Makes Choices: The Firm Makes Choices: Costs & The Market Costs & The Market
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3.1 INDUSTRIES AND  PRODUCTION PROCESSES Industry It consists of a firm or a number of firms that use like processes  to produce their outputs. Production Value added Production tree inputs    processes or activities    outputs 
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3.2 COST FACIG THE FIRM Factors of production Natural Resources Human Resources  (manual functions) Human Resources  (mental functions) Manufactured  Resources Raw materials,  Fuel,  Property on which  activities take  place Production work, Clerical work, Cleaning work Management, Marketing, Commercial advice Process machinery, Machinery parts, Office equipment
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3.2.1 Total Revenue, Total Cost,  and Profit 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 Profit = Total revenue  - Total cost
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Cost as Opportunity Cost Explicit Costs input cost that require an outlay of money by the firm Implicit Costs input costs that do not require an outlay of money by the firm Choice 1 deposit=$300,000 (interest rate=5%) Choice 2 deposit=$100,000 borrowed capital=$200,000
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Economic Profit versus  Accounting Profit Economic Profit total revenue minus total cost, including both explicit  and implicit costs. Accounting Profit total revenue minus total explicit cost.
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Economists vs Accountants Economic  profit Implicit  costs Explicit  costs Accounting profit Explicit  costs How an Economist Views a  Firm How an Accountant Views a  Firm Revenue Revenue Total costs
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3.3 PRODUCTION AND COST Assumption size of the cake factory is fixed quantity of cakes varies only by changing the number  of workers. realistic in the short run, but not in the long run.
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3.3.1 Production Function production function the relationship between quantity of inputs used to make a good and the  quantity of output of that good. marginal product the increase in output that arises from an additional unit of input. diminishing marginal product the property whereby the marginal product of an input declines as the  quantity of the input increases.
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Susan' s Production Function 1 Numbers of  Workers Output  (cakes/hour) Marginal  Product of  Labor Cost of  Factory Cost of  Workers Total Cost of  Inputs 0 0 50 40 30 20 10 $30 $0 $30 1 50 30 10 40 2 90 30 20 50 3 120 30 30 60 4 140 30 40 70 5 150 30 50 80
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Marginal Change small incremental adjustments to a plan of action.
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This note was uploaded on 12/06/2011 for the course BUSINESS Finance taught by Professor Qiuxin during the Summer '11 term at Nanjing University.

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Chp3 - Chapter 3 Chapter The Firm Makes Choices: Costs &...

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