Chapter 6 economic profit

Chapter 6 economic profit - o Increasing marginal returns...

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Chapter 6: econ profit, production and economies of scale Profit: o Firms main goal is to maximize profit Total rev- total cost o 2 types of costs: Explicit cost: paid in money Implicit cost: expenses an owner does not have to pay out of pocket: opportunity cost, owner provided capital(K), owner provided labor Types of profit: o Accounting profit: rev as money taken in, cost as money needed to make finish good o Economic profit: looks at rev as money taken in and costs as the money used to provide product and expenses that owner doesn’t pay out of pocket Production: o The relationship between output and quantity of labor o Total product=ttl quantity of a good provided in a given period Defines ttl amount of product that can be produced in a given time frame with said number of workers o marginal product: change in ttl product due to a one unit increase in the amount of labor Change in product/ change in labor
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Unformatted text preview: o Increasing marginal returns When marginal product of additional worker exceeds the marginal product of the previous worker The ttl amount produced increases and the production per worker increases too o Decreasing marginal return When Marginal product of an additional worker is less than the marginal product of the previous worker Total amount produced increases, but marginal product decreases o Negative marginal returns Is when additional person decreases the amount of quantity produced o Type of return is determined by the slope of the total product line • Law of diminishing returns: o As more units of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decline o Average product: the general productivity of each worker Total product/ quantity of labor...
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