July 5 - July 5, 2011 Notes Summer 2011 Econ 2000 II....

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July 5, 2011 Notes Summer 2011 Econ 2000 II. Substance A. Theory of the Firm: The Basics 1. Assumption—Businesses are not just answering the questions how much to produce and what price to charge, but doing it with a purpose—maximize profit. 2. Profit—from perspective of economist. Economic profit. Contrasts from accountant. Profit=benefit-cost for a firm = Total Revenue-Total Cost. a. Definitions i. Total Revenue- Price * Quantity ii. Marginal Revenue—Marginal revenue is the change in total revenue from selling one more unit of the good or service. Marginal Revenue= Change in TR Change in Quantity iii. Total Cost—total cost of procuring something to sell. a. Explicit—out of pocket cost/accounting cost. You directly pay for this out of pocket b. Implicit- not into pocket. Implicit cost is the accounting profit from doing the next best thing. i. Example: Corn dog stand. The explicit costs for this business would be the stand, supplies, and your employers. This is what accountants would add up.
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This note was uploaded on 01/16/2012 for the course ECON 2010 taught by Professor Roussel during the Spring '08 term at LSU.

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July 5 - July 5, 2011 Notes Summer 2011 Econ 2000 II....

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