ECON-UA 2 Lecture 13: How Firms Make Decisions Profit Maximization
31 Oct 2016
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Total revenue minus all costs of production, explicit and implicit. Payment for two contributions of entrepreneurs: risk taking and innovation. Clicker question: we just saw that total implicit costs were ,000: If another job foregone would have paid ,000, the implicit costs are ,000: true, false * (because you are only considering the next best alternative) Proper measure of profit: for understanding and predicting the behavior of firms. Recognizes all the opportunity costs of production. The quantity of output that customers will purchase from a particular firm. Shows us the maximum price the firm can charge to sell any given amount of output. The total inflow of receipts from selling a given amount of output. Each time the firm chooses a level of output, it also determines its total revenue. If ed1 > 1 (elastic demand): tr will rise. If ed1 < 1 (inelastic demand): tr will fall. Firm must pay prices for each of the inputs that it uses.
