ECON 1000 Chapter Notes - Chapter 9: Chief Executive Officer, Sole Proprietorship, Economic Efficiency

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: John Paschakis

Document Summary

A firm"s goal is to maximize economic profit. A firm that does not maximize profit is either eliminated or bought out by other firms. Economic profit: total revenue minus the firm"s opportunity cost. Implicit costs: a firm incurs implicit costs when: it uses its own capital, it uses its owner"s time or financial resources. Explicit costs: expenditure on utilities, wages, raw materials. The firm could rent the capital to another firm and receive rental income. The rental income forgone is the firm"s opportunity cost of using its own capital. In the case of implicit costs, the firm does not make a payment. Economic depreciation: the change in the market value of capital over a given period. Normal profit: the rate of profit an entrepreneur can expect to receive on the average; a normal rate of profit is the opportunity cost of investment. Economic profits: are profits over and above normal profits, are excess profits.