ECON 201 1nd Edition Lecture 14 Outline of Last Lecture I Maximizing Utility and Equilibrium II Rational Choice and the Laws of Demand and Supply III The Cost of decision making Outline of Current Lecture I Introduction II The Firm and the Market III The Production Process Current Lecture I II III Introduction a Production is transformation of factors into goods b Firm and its objective c The firm is an economic institution that does the transformation d Organizes factors of production e Produces goods and services f Sells produced goods and services g Firm must pay at least the resource s opportunity cost to hire it The firm and the Market a Profit total revenue total cost i Firm does not make direct payment for resources they own but all resources have opportunity cost ii Accountants profit explicit revenue explicit cost iii Explicit cost wage rent insurance taxes iv Economist profit explicit and implicit revenue and cost v Implicit cost opportunity cost of use of building and owner s time or capital vi Implicit Revenue increase in building value or firm brand value The production process a The production process can be divided into the long run and short run b Long run all inputs technology possible i Inputs variable c Short run face constraint in decisions i Inputs fixed These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute d They differ in the degree of flexibility the firm has in changing the level of output e A production table shows the total output resulting from various combinations of factors of production or inputs f Marginal product is the additional output obtained from an additional input Other inputs remain constant g Average Product AP TP I h Production function a curve that describes the relationship between the inputs factors of production and maximum outputs i Law of Diminishing marginal productivity as more and more of a variable input is added to an existing fixed input after some point the additional output one gets from the additional input will fall
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