ECON 1000 Lecture Notes - Lecture 10: Profit Maximization, Opportunity Cost, Cost Curve

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: Avi Cohen

Document Summary

Hires and organizes factors of production to produce and sell goods and services goal profit maximization. Accounting profits equal revenues minus all explicit costs, including depreciation. But accounting profits miss the hidden, i(cid:373)pli(cid:272)it opportu(cid:374)it(cid:455) (cid:272)osts of a (cid:271)usi(cid:374)ess o(cid:449)(cid:374)er"s ti(cid:373)e a(cid:374)d (cid:373)o(cid:374)e(cid:455) Explicit costs - costs a business pays directly: accountants count all explicit business costs and include depreciation. Decrease in the value of equipment over time because of wear and tear and because it becomes obsolete. Yearly depreciation cost is the price of equipment divided by number of years it lasts: accounting profits - revenues explicit costs (including depreciation) Smart business decisions return at least normal profits what a business owner could earn from the best alternative uses of her time and money. There are economic profits over and above normal profits when revenues are greater than all opportunity costs of production, including implicit costs: normal profits. Compensation for busi(cid:374)ess o(cid:449)(cid:374)er"s ti(cid:373)e a(cid:374)d (cid:373)o(cid:374)e(cid:455), or.