ECON 200 Lecture Notes - Lecture 18: Production Function
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Thursday, August 24, 2017
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- accountant measures the firm’s accounting profit as the firm’s total revenue minus only the
firm’s explicit costs
- economists include all opportunity costs when analyzing a firm
- economic profit is always smaller than accounting profit
- a firm making positive economic profit will stay in business. It is covering all its opportunity
costs and has some revenue left to reward the firm owners
- Firms incur costs when they buy inputs to produce the goods and services that they plan to sell
- relationship between the quantity of inputs (workers) and quantity of output (cookies) is
called the production function
- different combinations of capital and labor = output
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ECON 200 Full Course Notes
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Document Summary
Accountant measures the firm"s accounting profit as the firm"s total revenue minus only the firm"s explicit costs. Economists include all opportunity costs when analyzing a firm. Economic profit is always smaller than accounting profit. A firm making positive economic profit will stay in business. It is covering all its opportunity costs and has some revenue left to reward the firm owners. Firms incur costs when they buy inputs to produce the goods and services that they plan to sell. Relationship between the quantity of inputs (workers) and quantity of output (cookies) is called the production function. Different combinations of capital and labor = output.