EC270 Chapter Notes - Chapter 5: Average Variable Cost, Average Cost, Sunk Costs
Document Summary
To maximize profit, a manager wishes to produce at an output level where the marginal revenue equals the marginal cost. A thorough understanding of cost is necessary for a variety of basic managerial decisions: pricing, output, transfer pricing cost control, and planning for future production. Cost considerations include both short-run and long-run components. Managerial economics define the opportunity cost of producing a particular product as the revenue a manager could have received is she had used her resources to produce the next best alternative product or service. Opportunity cost doctrine the inputs" values together with production costs determine the economic cost of production. Historical cost the money that managers actually paid for an input. Managerial economists believe historical costs can be misleading. Explicit costs the ordinary items accountants include as the firm"s expense payroll, payments or raw materials, etc. Implicit costs the forgone value of resources that managers did not put to their best use.
