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Econ 1101- Chapter 6

by: Maria Madrigal

Econ 1101- Chapter 6 Econ 1101

Maria Madrigal


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Chapter 6 Production and Cost
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This 2 page Class Notes was uploaded by Maria Madrigal on Friday September 16, 2016. The Class Notes belongs to Econ 1101 at Gwinnett Technical College taught by in Fall 2016. Since its upload, it has received 3 views. For similar materials see in Economics at Gwinnett Technical College.


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Date Created: 09/16/16
Economics- Chapter 6 Production and Cost The Profit Motive Profit is not your only motive to undertake a business. -Funding research, high education opportunities, scholarships, charities etc. these things are conducted by large businesses because it builds loyalty and building a brand image. Cultivates the companies image growing in the community. The survivorship principle: Firms that survive the market are more likely to be profit maximizers. Explicit Costs: opportunity costs that take the form of explicit payments to suppliers of factors of production and intermediate goods. -comes from your balance sheet. -out of pocket; visible expenses (ex: paying rent or buying office supplies). Implicit costs: opportunity costs of using resources that a firm’s owners (or the firm itself, as a legal entity) contribute without receiving explicit payment -something that’s yours that you’re using from your own salary. -anything that doesn’t come from your balance sheet. -nonvisible costs; opportunity costs (ex: using your own truck for your business). EconomicCost=Explicit+Implicit The Nature of Costs PureEconomic Profit=(Totalrevenue)–(explicit)–(implicit) Accounting Profit=(Totalrevenue)–(Explicit) ZeroEconomicProfit=Normal Profit Costs are subjective Profit, Rents, & Entrepreneurship Payments in excess of opportunity costs is called economic rents. -economic rent rises because of how exclusive it is. Profit Seeking- an entrepreneur seeking profit when you create goods and services that create value to something. Fixed Costs, Variable Costs, and Sunk Costs Variable input: input that can be varied within a short time in order to increase or decrease output Variable cost: the explicit and implicit costs of providing variable inputs Fixed input: input that cannot be increased or decreased in a short time in order to increase or decrease output Fixed cost: the explicit and implicit opportunity costs associated with providing fixed inputs Short run: a time horizon within which a firm can adjust output only by changing the amounts of variable inputs it uses while fixed inputs remain unchanged Economics- Chapter 6 Production and Cost -Time frame where you cannot make a lot of changes to your production plan. Long run: a time horizon that is long enough to permit changes in both fixed and variable inputs -Time frame where you can make changes to your production. Sunk costs: once-and-for-all costs that a firm cannot recover once it incurs them.


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