ECON 201 1st Edition Lecture 8 I Organizing Production Profit net Minus A Economic Profit vs Accounting Profit TR TC o total revenue total cost B Costs Explicit vs Implicit costs o Explicit costs are those that are paid directly Wage bill Materials cost Utilities Technology R D o Implicit costs are incurred but not paid directly Opportunity o Economic Profit is total revenue net explicit and implicit cost Includes opportunity costs o Accounting is total revenue net explicit costs Suppose Betsy makes 25 000 year working at Petsmart She decides to open her own consulting firm which earns 80 000 revenue for the first year Her supplies wages and utilities cost her 60 000 Accounting 80 000 60 000 20 000 business remains solvent Economic 80 000 60 000 25 000 5 000 C Technological vs Economic Efficiency Making 20 computers Method A combines 10 units of labor and requires you to use 500 units of capital technologically more efficient than B Method B combines 15 units of labor and requires you to use 500 units of capital Method C combines 5 units of labor and requires you to use 600 units of capital technologically more efficient than A conserve more on labor than capital Method B is technologically efficient Firms will choose between A and C based on the total cost Suppose labor cost 10 000 each and Capital cost 1 000 each unit o Method A TC 10 000 500 000 600 000 o Method C TC 50 000 600 000 650 000 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 o Factor biased technologies o Method A is the economically more efficient Efficient saves on cost it is the least costly method of production D Firm Costs Production Total Product o The total product curve for a firm is the maximum that a firm can produce with a given amount of inputs o Graph o If you add an additional input do you get more outcome Convex Function Increasing Marginal Returns Diminishing Marginal Returns Decreasing Marginal Returns Too many cooks in the kitchen Marginal Product one more o The additional output from one additional input hired o MP Q L Average Product o AP Q L output input Relationship between the margin and average interrelated o If the margin average then average is rising GPA If your GPA for winter term is higher than your accumulative then your average will go up o If the margin average then average is falling o Likewise for costs
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