chap 4 - 9/12/2010 Chapter 4 Supply Learning objectives 1....

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9/12/2010 1 Chapter 4 Supply Learning objectives ` 1. Define supply and understand the factors that influence supply. ` 2 See how the law of demand leads to an upward-sloping 2. See how the law of demand leads to an upward sloping market supply curve for a good even when there is no production ( supply from an existing stock ) ` 3. Understand the roles that the law of diminishing returns and comparative advantage play in determining an upward-sloping market supply curve when there is production ` 4. Identify the factors that lead to a change in supply and understand the distinction between a change in supply and a change in quantity supplied
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9/12/2010 2 Profit ` The goal of a firm is to maximize profit ` Profit = total revenue – total cos Profit total revenue total cost ` Remember cost is economic cost ` Economic cost includes both explicit (nonsunk costs) and implicit costs Economic profit vs. accounting profit ` Example: Music store Total revenue $600,000/year Wages $300,000 Rent $100,000 Instruments $20,000 CDs $20,000 Books $20,000 ` Accounting profit = $140,000 Total accounting cost $460,000
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9/12/2010 3 Economic profit ` What is the value of the music store owner’s best alternative use of time?
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chap 4 - 9/12/2010 Chapter 4 Supply Learning objectives 1....

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