ECO 1104 Lecture 9: Nov.1/6/8.2018
23 Jan 2019
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ECO 1104 Full Course Notes
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Related to the supply side of the market. Profits = total revenue - total costs = p*q - total costs. Costs composed of payments to the factors of productions. Explicit costs are out-of-pocket, fork it over" costs. Implicit costs are opportunity costs associated with a firm"s inputs that do not require an outlay of money. Value of the firm"s inputs in alternative uses. The going rate of return on capital, which could have been earned has the firm"s capital been invested elsewhere. What the land could have earned in another use. The basic idea: the bottom line for an economist is not the bottom line for an accountant. Accounting profits = tr - explicit costs. Economic profits = total revenue - explicit costs - implicit costs. In other words, for economic profits, one takes account of the value of the firm"s resources in alternative uses.
