ECON 1B03 Lecture Notes - Variable Cost, Fixed Cost, Marginal Product
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ECON 1B03 Full Course Notes
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Total revenue is the amount a firm receives for the sale of its output. The total cost is the market value of the inputs a firm uses in production. Profit (capital pi) is the firm"s total revenue minus its total cost. Cost of production includes all the opportunity costs of making its output of goods and services. Input costs that require a direct outlay of money by the firm. Input costs that do not require an outlay of money, but refers to opportunity costs. Measure a firm"s economic profit as total revenue minus total cost, both implicit and explicit. Measure the accounting profit as the firm"s total revenue minus only the firm"s explicit costs. When total revenue > both implicit and explicit costs, the firm earns economic profit. Economic profit is smaller than accounting profit because it includes implicit costs. Shows the relationship between quantity of inputs used to make a good and the quantity output of that good.