ECON101 Lecture Notes - Sunk Costs, Economic Efficiency, Isocost

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Wokia Kumase

Document Summary

Organizes them to produce and sell good and services. ** firms must make profit,or they"ll be bought or taken over by another firm So in long-run, firms that survive are the ones that maximize profits. Maximizing approach: maximize output with a given set of input. Minimizing approach: minimize input with a given output: what are costs, explicit costs: involve a direct monetary outlay, implicit costs: do not involve outlays or cash, opportunity cost(best forgone alternative) Accounting costs: only covers explicit costs that have been incurred in the past: sunk costs&non-sunk costs: Sunk costs: costs that have already been incurred and cannot be recovered. Non-sunk costs(avoidable): costs that are incurred only if a particular decision is made. Whether a cost is sunk or non-sunk costs, depends on the shut-down price. (the decision that is being contemplated) A: we should not have sunk costs. long-run has nothing to do with time periods: a firm"s opportunity cost of production.