MicroEconomics - Lecture 5

MicroEconomics - Lecture 5 - The Costs of Production 1....

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The Costs of Production 1. Profits and Opportunity Cost a. How do economists define costs of production? b. Production and costs c. Various measures of cost d. Cost curves and their shapes Total Revenue; the amount a firm receives for the sale of its output. Total Cost; The market value of the inputs a firm uses in production. Profit is the firm’s total revenue minus its total cost. Profit= Total Revenue – Total Cost A firms cost of production includes all the opportunity costs of making its output of goods and services. An opportunity cost of something is what you give up to get that something. A barber owning a barber shop. A professor mowing the lawn. Explicit costs are input costs that require a direct outlay of money by the firm. Implicit costs are input costs that do not require an outlay of money by the firm. Economists measure a firm’s economic profit as total revenue minus total cost, including both explicit and implicit costs. Accountants measure the accounting profit as the firm’s total revenue minus only the firm’s explicit costs. When total revenue exceeds both explicit and implicit costs, the firm earn economic
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This note was uploaded on 04/09/2008 for the course ECON 2106 taught by Professor Minjaesong during the Fall '06 term at Georgia Institute of Technology.

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MicroEconomics - Lecture 5 - The Costs of Production 1....

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