ECON 1050 Lecture Notes - Diminishing Returns, Plywood, Variable Cost

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Firm an institution that hires factors of production and organizes those factors to produce and sell goods and services. Depreciation fall in value of a firm"s capital. Accountants measure firm"s profit to ensure that the firm pays the correct amount of income tax and to show its investors how their funds are being used. Economists measure a firm"s profit to enable them to predict the firm"s decisions, and the goal of these decisions is to maximize economic profit. Economic profit is equal to total revenue minus total cost, with total cost measured as the opportunity cost of production. Opportunity cost of production value of best alternative use of resources that a firm uses in production. When a firm uses its own capital, it implicitly rents from itself. A firm"s opportunity cost of production in the sum of the cost of using resources: