AGRC 113 Study Guide - Final Guide: Risk-Seeking, Futures Contract, Intercontinental Exchange
Document Summary
Relevant lectures: cost of production, how do firms compete: know the difference between, explicit costs: out-of-pocket costs, payments that are actually made. Example: wages that a firm pays its employees or rent that a firm pays for its office. b) Implicit costs: more subtle, but just as important. They represent opportunity cost of using resources already owned by the firm. Example: often for small businesses, they are resources contributed by the owners, such as working without a formal salary. Whether you produce a lot of a little, the fixed costs are the same: variable costs: incurred in the act of producing the more you produce, the greater the variable cost. Labor is treated as a variable cost, since producing a greater quantity of a good or service typically requires more workers or more work hours. A larger factory can produce at a lower average cost than a smaller factory.
