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Chapter 10-1

Chapter10-1-The Firm and Its Economic Problem.pdf

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Department
Economics
Course
ECON 1000
Professor
Sadia Mariam Malik
Semester
Fall

Description
The Firm and Its Economic Problem93820131114The Firm and Its Economic ProblemThe firms GoalEach firm is an institutionthat hires factors ofproduction and organizes those factors to produce 1and sell goods and servicesA firms goal is tomaximize profit Other things are the means to that goal2A firm that does not seek to maximize profit either fails or is taken over bya firm that does seek 3that goalAccounting ProfitDepreciationis the fall in the value of a firms capital4To calculate depreciation accountants use Revenue Canada rules based on standards established 5by the accounting professionEconomic AccountingAccountants measure a firms profit to ensure that the firm pay the correct amount of income tax 6and show investors how their funds are being usedEconomists measure a firms profit to enable them to predict the firms decisionsand the goal of 7these decision is to maximize economic profitEconomic profit is equal to total revenue minus total cost with total cost measured as the 8opportunity cost of productionA Firms Opportunity Cost of ProductionThe opportunity cost of any action is the highest valued alternative forgone9The opportunity cost of production is the value of the best alternative use of the resources that a 10firm uses in productionA firms opportunitycost of production is the sum of the cost of using resources11Bought in the marketaOwned by the firmbSupplied by the firmcResources Bought in the marketThe amount spent on these resources is an opportunity cost of production because the firm could 12have bought different resources to produce some other good or serviceResources Owned by the FirmThe co
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