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Lecture: Organizing Production

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University of Guelph
ECON 1050

Lecture 15 ECON1050 Page 1 Note Human capital differs from labour human capital is highly MICROECONOMICS skilled labourers management Organizing Production research and development etcIntroductionfirm institution that hires and organizes factors of production to produce goods and services o goal is to maximize profit failure to do so leads to elimination or buyoutfactors affecting output quantity capital human and physical labour natural resources and technology PHo QF K L N TAccounting Profitaccountants measure firms profit to ensure firms pay correct tax and show investors how funds are used o profittotal revenuecostInternal Revenue Service Rules used to calculate firms depreciation costEconomic Profiteconomists measure a firms profit to predict the firms decisions goal of these decisions is to maximize economic profit o economic profit total revenuetotal costtotal costopportunity cost of productionA Firms Opportunity Cost of Productionfirm opportunity cost value of the best alternative use of the resources used in productionA Resources bought in the marketfirm could buy other resources to produce other goodsB Resources owned by the firmfirm could sell the capital and rent capital from another firm o would free up money to invest in other thingsfirm implicitly rents capital it owns from itself o implicit rental rateOC of owning capitaleconomic depreciation change in the market value of capital over a given periodinterest foregone return on the funds used to acquire the capitalC Resources supplied by the firms ownerowner might suppy both entrepreneurship o return on entrepreneurship is profitnormal profit profit expected to receive on averageexcess profitowner might supply labour without taking a wage o OCwage income forgone by not taking the best alternative job
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