Chapter 13: The Costs of Production
•
Industrial organization
the study of how firm’s 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 firm’s 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 don’t 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 firm’s 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
•
This
preview
has intentionally blurred sections.
Sign up to view the full version.

This is the end of the preview.
Sign up
to
access the rest of the document.
- Fall '06
- WISSINK
- Economics
-
Click to edit the document details