ECO 1104 Lecture Notes - Lecture 9: Opportunity Cost, Marginal Product

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: David Gray

Document Summary

I(cid:373)pli(cid:272)it (cid:272)osts are opportu(cid:374)ity (cid:272)osts asso(cid:272)iated (cid:449)ith a fir(cid:373)(cid:859)s i(cid:374)puts that do (cid:374)ot require an outlay of money: value of the fir(cid:373)(cid:859)s i(cid:374)puts i(cid:374) alter(cid:374)ati(cid:448)e uses. The going rate of return on capital, which could have been earned had the fir(cid:373)(cid:859)s (cid:272)apital (cid:271)ee(cid:374) i(cid:374)(cid:448)ested else(cid:449)here. What the land could have earned in another use. If economic profits > 0, resources are being used such that the return exceeds that of other uses. If economic profits < 0, resources are being used such that the return is lower than that in other uses. If economic profits = 0, the return on inputs is the same as it would be in other uses. We assu(cid:373)e that the fir(cid:373)(cid:859)s o(cid:271)je(cid:272)ti(cid:448)e is to maximize profits, which (theoretically) go to the stockholders. These days well-known firms are laying off workers not because they are facing bankruptcy, but rather to boost (cid:858)shareholder (cid:448)alue(cid:859)