13 Econ Class notes - Ch 13 Costs of Production All...

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Ch. 13 Costs of Production- All questions for review, Problems and applications 1,2,5,6,7 I. What are Costs? a. Total Revenue, Total Cost, Profit i. A firm’s objective is to maximize profit ii. Total Revenue-Amount the firm receives for the sale of its output 1. Equals Price*Quantity iii. Total Cost-Market value of inputs a firm uses in production iv. Profit=TR-TC b. Costs as Opportunity costs i. Princ. 2-The cost of something is what you have to give up to get it ii. Cost of production includes ALL opportunity costs iii. Total Opportunity costs includes both explicit and implicit costs 1. Explicit costs-input costs require an outplay of money by the firms a. Have to have the money in hand, cash 2. Implicit costs-Input costs that do not require an outlay of money by the firm a. Could be winning a $20,000 case 3. Total Economic Cost=Explicit cost + Implicit cost 4. Economists and Accountants differ in the definition of cost 5. Accountants measure only the explicit cost 6. Economists measure both Implicit and Explicit costs 7. Nature of implicit cost is so subjective, possibility of winning Nobel prize, 1 million dollars c. Cost of Capital as an opportunity cost i. Cost of financial capital is important in analyzing a firm’s
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13 Econ Class notes - Ch 13 Costs of Production All...

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