7.1 Explicit and Implicit Costs, and Accounting and Economic Profit Privately owned firms are motivated to earn profits. Profit is the difference between revenues and costs. While accounting profit considers only explicit costs, economic profit considers both explicit and implicit costs.…
Learning Objectives By the end of this section, you will be able to: The long run is the period of time when all costs are variable. The long run depends on the specifics of the firm in question—it is not…
Learning Objectives By the end of this section, you will be able to: In the long run, all factors (including capital) are variable, so our production function is Q=f[L,K]. Consider a secretarial firm that does typing for hire using typists for…
Learning Objectives By the end of this section, you will be able to: We’ve explained that a firm’s total costs depend on the quantities of inputs the firm uses to produce its output and the cost of those inputs to…
Learning Objectives By the end of this section, you will be able to: In this chapter, we want to explore the relationship between the quantity of output a firm produces, and the cost of producing that output. We mentioned that…
Learning Objectives By the end of this section, you will be able to: Each business, regardless of size or complexity, tries to earn a profit: Profit=Total Revenue – Total Cost Total revenue is the income the firm generates from selling its products. We calculate…
Figure 7.1 Amazon is an American international electronic commerce company that sells books, among many other things, shipping them directly to the consumer. Until recently there were no brick and mortar Amazon stores. (Credit: modification of “Amazon Prime Delivery Van (50072389511)” by…
6.1 Consumption Choices Economic analysis of household behavior is based on the assumption that people seek the highest level of utility or satisfaction. Individuals are the only judge of their own utility. In general, greater consumption of a good brings higher…
Learning Objectives By the end of this section, you will be able to: As we know, people sometimes make decisions that seem “irrational” and not in their own best interest. People’s decisions can seem inconsistent from one day to the…
Learning Objectives By the end of this section, you will be able to: Just as we can use utility and marginal utility to discuss making consumer choices along a budget constraint, we can also use these ideas to think about…