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ECN 104 (388)
Chapter 13

ECN 104 Chapter 13: cost of production

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Ryerson University
ECN 104
Tsogbadral Galaabaatar

Chapter 13 The Cost of Production WHAT ARE COSTS? Total Revenue, Total Cost and Profit Cost as Opportunity Costs Explicit costs require an outlay of money, e.g. paying wages to workers Implicit Costs dont require a cash outlay, e.g. the opportunity cost of the owners time You need 100,000 to start your business and the interest rate is 5. Use 40k of your savings, borrow the other 60k. Explicit cost = 3k (5) interest on loan Implicit cost = 2k (5) foregone interest you could have earned on your 40k Economic Profit vs Accounting Profit Accounting Profit = Total revenue Total explicit cost Economic Profit = Total revenue total costs (explicit + implicit) PRODUCTION AND COSTS The Production Function Shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good Can be represented by a table, equation or graph Marginal Product the increase in output arising from an additional unit of that input MPL = = slope of Prod Fun. Diminishing marginal product the MPL of an input declines as the quantity increases 1 Parmida
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