ECN 104 Chapter Notes - Chapter 13: Farmer Jack, Average Cost, Marginal Product

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The cost of something is what you give up to get it firms" decisions. You need ,000 to start your business. Interest rate is 5: borrow ,000, explicit cost = interest on loan. Case 2: use ,000 of your savings, borrow the other ,000, explicit cost = (5%) interest on the loan. Implicit cost = (5%) foregone interest you could have earned on your ,000. His costs rise by the wage he pays the worker. His output rises by mpl: comparing them helps jack decide whether he would benefit from hiring the worker, why mpl diminishes additional worker. Fixed and variable costs: fixed costs (fc) do not vary with the quantity of output produced. For farmer jack, fc = for his land. Other examples: cost of equipment, loan payments, rent: variable costs (vc) vary with the quantity produced. For farmer jack, vc = wages he pays workers.