, The costs of Production
Economic cost I opportunity costs
Why do costs exist ?: resources are scarce ,
productive and have alternative uses
When
society
(or firms) uses a combination of resources to produce a particular product ,
it forgoes
all alternative opportunities to use those resources for other purposes
of resources owned by other
use
Explicit costs : the
monetary payments (or cash expenditures) it makes to those who
supply
↑
direct monetary pay labour services ·
materials . Sel ,
transportation services etc .
self owned resources , want be in the books leg . loss of income
↓
Implicit costs :
opportunity costs of
using its self owned ,
self employed resources . To the
firm. implicit costs are the money payments that self-employed resources
resources could have earned in their best alternative use
Accounting profit : Total revenue -
explicit costs
minimum level of profit necessary to keep the firm in operation in the long run
~
Normal profit : the
payment made by a firm to obtain and retain entrepreneurial ability
or the minimum income entrepreneurs must receive to induce it to perform
those functions for a firm
Economic pure profit : Total revenue -
total costs (explicit and implicit ,
the latter
including
normal profit to the entrepreneur
short run and run
long
short run : period too brief for a firm to alter its plant (facility) capacity .
which
yet long enough to permit a
change in the
degree to the
cixed plant is used
Long run : period long enough for the firm to adjust the quantities of all the
it incl
resources that
employs , plant capacity
In short run : at least one input is fixed .
Long run : all inputs are variable
Economic cost I opportunity costs
Why do costs exist ?: resources are scarce ,
productive and have alternative uses
When
society
(or firms) uses a combination of resources to produce a particular product ,
it forgoes
all alternative opportunities to use those resources for other purposes
of resources owned by other
use
Explicit costs : the
monetary payments (or cash expenditures) it makes to those who
supply
↑
direct monetary pay labour services ·
materials . Sel ,
transportation services etc .
self owned resources , want be in the books leg . loss of income
↓
Implicit costs :
opportunity costs of
using its self owned ,
self employed resources . To the
firm. implicit costs are the money payments that self-employed resources
resources could have earned in their best alternative use
Accounting profit : Total revenue -
explicit costs
minimum level of profit necessary to keep the firm in operation in the long run
~
Normal profit : the
payment made by a firm to obtain and retain entrepreneurial ability
or the minimum income entrepreneurs must receive to induce it to perform
those functions for a firm
Economic pure profit : Total revenue -
total costs (explicit and implicit ,
the latter
including
normal profit to the entrepreneur
short run and run
long
short run : period too brief for a firm to alter its plant (facility) capacity .
which
yet long enough to permit a
change in the
degree to the
cixed plant is used
Long run : period long enough for the firm to adjust the quantities of all the
it incl
resources that
employs , plant capacity
In short run : at least one input is fixed .
Long run : all inputs are variable
