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Engineering Management Class Notes_77690628-Micro-Class-Notes-Ch13-Prodcost

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Dr. Katie Sauer Principles of Microeconomics The Costs of Production (Ch 13) Basic economic assumption: firms attempt to ____________________. It is possible for firm owners to have different goals. The one motive that makes the most accurate prediction about how firm managers behave is the assumption of profit maximization. I. Profit The goal of a firm is to maximize profit. _________ = Total Revenue – Total Cost Π = TR – TC Total ___________ = price x quantity Total ___________ = market value of all inputs used in production To an economist, the costs of producing an item must include all of the ___________________costs of inputs used in production. Costs include both implicit and explicit costs. explicit costs: input costs that require an outlay of money by the firm ex: wages, electricity, raw materials implicit costs: input costs that do not require an outlay of money by the firm ex: forgone interest earned on money spent ________________________________________________________________ Ex: Caroline uses $300,000 of her savings to start her firm. It was in a savings account paying 5% interest. When she takes the money out of savings, she no longer earns interest on it. forgone interest = Because Caroline could have earned $15,000 per year on this savings, we should include this in her total cost. implicit cost=forgone interest = explicit cost = total cost = _________________________________________________________________ Ex: If Caroline had instead borrowed $200,000 ...
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