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microbook_3e-page114 - b opportunity cost of each factor of...

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Lecture 8 Costs and Output Decisions in the Long Run Eric Doviak Principles of Microeconomics Profit-Maximization (economic) profit = total revenue – total (economic) cost total revenue – amount received from the sale of the product (price times number of goods sold) total (economic) cost the total of: 1. out of pocket costs (ex. prices paid to each input) 2. opportunity costs: a. normal rate of return on capital and
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Unformatted text preview: b. opportunity cost of each factor of production – ex. if the firm I own pays me $30,000, but I could only earn $10,000 if I worked for another firm, then the “best alternative I forgo” when I work for my own firm is $10,000 In contrast to the examples in Lecture 6, here I’m earning MORE than my opportunity cost. I’m giving an example of economic profit. Page 114...
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