Textbook Notes (368,448)
Canada (161,882)
Economics (14)
01:220:102 (14)
Chapter 9


2 Pages
Unlock Document

Thomas Prusa

Chapter 9 – Making Decisions Opportunity Cost and Decisions  Resources are scares  True cost of anything is its opportunity cost- cost of something is what you must give up to get it Explicit vs. Implicit Costs  Explicit cost- cost that requires an outlay of money  Implicit cost- does not require an outlay of money; measured by the value, in dollar terms, of benefits that are forgone Accounting Profit vs. Economic Profit  Accounting profit- business’s revenue minus the explicit cost and depreciation  Economic profit- business’s revenue minus the opportunity cost of its resources; usually less than accounting profit  Depreciation- reduction in value  Capital- value of a business’s assets- equipment, buildings, tools, inventory, and financial assets  Implicit cost of capital- opportunity cost of the capital used by a business- income the owner could have realized from that capital if it had been used in its next best alternative way  Companies report their accounting profit, which is not necessarily equal to their economic profit  Due to the implicit cost of capital and the opportunity cost of the owner’s time, economic profit is often substantially less than accounting profit Making “How Much” Decisions: The Role of Marginal Analysis Marginal Cost  Marginal cost of producing a good or service is the additional cost incurred by producing one more unit of that good or service  Production of a good or service has constant marginal cost when each additional unit costs the same to produce as the previous one  Marginal cost curve shows how the cost of producing one more unit depends on the quantity that has already been produced o Horizontal marginal cost curve- constant marginal cost o Upward-sloping marginal cost curve- increasing marginal cost  Production of a good or service has increasing margi
More Less

Related notes for 01:220:102

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.