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Unformatted text preview: Chapter 13: The Costs of Production Industrial organization the study of how firms decisions about prices and quantities depend on the market conditions they face What are Costs? Total Revenue, Total Cost, and Profit Total revenue the amount a firm receives for the sale of its output Economists normally assume that the goal of a firm is to maximize profit Total cost the market value of the inputs a firm uses in production Profit total revenue minus total cost Total revenue equals the quantity of output the firm produces times the price at which it sells its output Costs as Opportunity Costs When economists speak of a firms cost of production, they include all the opportunity costs of making its output of goods and services Explicit costs input costs that require an outlay of money by the firm Implicit costs input costs that dont require an outlay of money by the firm Total cost is the sum of explicit and implicit costs Econ are interested in studying how firms make production and pricing decisions o These decisions are based on both explicit and implicit costs Accountants include both when measuring a firms costs o Have a job of keeping track of the money that flows into and out of firms o They only measure explicit costs The Cost of Capital as an Opportunity Cost...
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- Fall '06