Chapter7 - The Cost of Production Chapter 7 A C T I V E L E...

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The Cost of Production Chapter 7
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You run General Motors. List 3 different costs you have. List 3 different business decisions that are affected by your costs. A C T I V E  L E A R N I N G      A C T I V E  L E A R N I N G      Brainstorming costs Brainstorming costs 2
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Chapter Outline Measuring Cost: Which Costs Matter? Cost in the Short Run Cost in the Long Run Optimal choice of input combinations
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MEASURING COST: WHICH COSTS MATTER? Economic Cost versus Accounting Cost accounting cos t: actual expenses plus depreciation charges for capital equipment economic cos t: cost to a firm of utilizing economic resources in production, including opportunity cost Opportunity cos t: cost associated with opportunities that are forgone when a firm’s resources are not put to their best alternative use
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The equilibrium rent on office space has just increased by $500/month. Compare the effects on accounting cost (hence accounting profit) and economic cost (hence economic profit) if a. you rent your office space b. you own your office space A C T I V E L E A R N I N G A C T I V E L E A R N I N G Economic cost vs. accounting cost Economic cost vs. accounting cost
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The rent on office space increases $500/month. a. You rent your office space. Accounting costs and Economic costs both increase $500/month. Accounting profit & economic profit each fall $500/month. b. You own your office space. Accounting profit does not change. Economic costs increase $500/month (opp. cost of using your space instead of renting it), so economic profit falls by $500/month. A C T I V E L E A R N I N G A C T I V E L E A R N I N G Answers Answers
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MEASURING COST: WHICH COSTS MATTER? s unk cos t Expenditure that has been made and cannot be recovered. Because a sunk cost cannot be recovered, it
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This note was uploaded on 02/06/2012 for the course ECON 293 taught by Professor Akbulut during the Spring '11 term at South Carolina.

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Chapter7 - The Cost of Production Chapter 7 A C T I V E L E...

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