ECON101 Chapter Notes - Chapter 10: Opportunity Cost, W. M. Keck Observatory, Limited Liability

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Nafeez Fatima

Document Summary

Firm: an institution that hires factors of production and organizes those factors to produce and sell g/s. A fi(cid:396)(cid:373)"s goal is to (cid:373)a(cid:454)i(cid:373)ize p(cid:396)ofit. A(cid:272)(cid:272)ou(cid:374)ta(cid:374)ts (cid:373)easu(cid:396)e a fi(cid:396)(cid:373)"s p(cid:396)ofit to e(cid:374)su(cid:396)e that the fi(cid:396)(cid:373) pa(cid:455)s the (cid:272)o(cid:396)(cid:396)e(cid:272)t a(cid:373)ou(cid:374)t of i(cid:374)(cid:272)o(cid:373)e ta(cid:454) a(cid:374)d to sho(cid:449) its i(cid:374)(cid:448)esto(cid:396)s how their funds are being used. E(cid:272)o(cid:374)o(cid:373)ists (cid:373)easu(cid:396)e a fi(cid:396)(cid:373)"s p(cid:396)ofit to p(cid:396)edi(cid:272)t fi(cid:396)(cid:373)"s de(cid:272)isio(cid:374)s. Economic profit: total revenue total cost. Recall: opportunity cost is the highest valued alternative forgone. The total is the opportunity cost of production. Opportunity cost of production: the value of the real alternatives forgone, expressed in money units. Money spent on resources could have been spent towards other resources used to produce g/s. It is the sum of using resources bought in the market, owned by the firm, and supplied (cid:271)(cid:455) the fi(cid:396)(cid:373)"s o(cid:449)(cid:374)e(cid:396) Implicit rental rate: opportunity cost of production incurred f(cid:396)o(cid:373) usi(cid:374)g fi(cid:396)(cid:373)"s o(cid:449)(cid:374) (cid:272)apital i(cid:374)stead of (cid:396)e(cid:374)ti(cid:374)g capital.