Ch 7 notes

Ch 7 notes - 16:38 Economic costs the payment that must be...

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16:38 Economic costs: the payment that must be made to obtain and retain the services of a resource. ..the income a firm must provide to resource suppliers to attract resources away from alternative uses *All resources have an opportunity cost Explicit costs = monetary payments it makes to those from whom it must purchase resources that it does not own. Obvious cash transaction Implicit costs = opportunity costs of using the resources that it already owns to make the firm’s own product rather than selling those resources to outsiders for cash. Present but not obvious Economic costs = explicit costs + implicit costs Accounting profit – the profit number that accountants calculate by subtracting total explicit costs from total sales revenue Accounting profit = revenue – explicit costs Normal profit – the typical amount of accounting profit that you would most likely have earned in one of the other ventures you could have gone into Economic profit = revenue – explicit costs – implicit costs Directs resource allocation – resources flow from producing goods and services with lower net benefits toward producing goods and services with higher net benefits Allocative efficiency increases – firms produce more of what consumers want the most Short run and long run Short run adjustments Hourly labor Raw material Fuel Power Long run adjustments Plant capacity – the size of factory building, amount of machinery and equipment, and other capital resources Short run – period too brief for a firm to alter its plant capacity, yet long enough to permit a change in the degree to which the plant’s current capacity is used, fixed-plant period
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Ch 7 notes - 16:38 Economic costs the payment that must be...

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