ESSAY

Week 2 Class

Session 4

Opening: the professor opening remarks concerned setting up the audio and referencing the midterm exam.

Chapter 9

Explicit costs that you have to pay out side of your company. These include rent, electricity outside work forces. Taking college as an example would be a computer, books and tution fees.

Implicts costs are basically the opportunity costs that are lost s a result of your effort. The foregone costs that such as loss of earnings.

Accounting cost versus economic costs were another type of costs that was covered in the class/

Accounting costs = explicit costs

Economic cost =implicit costs + explicit costs

Total revenue equals price x quantity

The professor gave is a number of formulas such as.

To get Accounting profit extract the explicit costs from the revenue.

To calculate economic profit , subtract both the explicit and implicit costs gtom the totl revenue

Economic profits are less than accounting profits( because of the implicit costs)

Negative economic profits means that you are losing mother as opposed to what you would be making if engaged in other or prior economic activities.

The capital of a business is the value of its assets, equipment, tools, building tools, inventory and financial assets.

The implicit cost of capital is the opportunity cost of capital to the the business. How could the capital have been used elsewhere?

Marginal ANALYSIS

Profit-maximizing principle of marginal analysis:

According to the Marginal decision rule;, if the marginal benefit is: more than the marginal , net benefit is maximized,

The optimal quantity is the

For a profit-maximizing “how much” decision, the optimal quantity is the largest quantity at which the marginal benefit is greater than or equal to marginal cost.

Sunk costs are costs that have been already incuured and is non recoverable.

An example the professor gave was waiting in line for twenty minutes at a supermarket and a nother line opens. That twenty mins is a sunk cost and should not have any effect on your decision.

Chapter 11: Behind the supply curve: inputs and costs

The professors opening remarks covered a production function, a fixed input, a variable input, the long run and the Short run.

A fixed input would be if you were leasing land or office space for 3 year and during those 3 years you costs are fixed.

In the long run you change things.

The production function shows the relation of workers hired in relation to output.

As they hire more wokers output increase

If you bring too many workers on board then the productivity goes down.

The variable cost is a cost that depends on the quantity of output produced

# It is the cost of the variable input

The marginal product of labor curve showed the diminishing returms to an imput. At some point the increase diminishes as each worker adds incrementaly less.

The total cost of producting is the variable plus the fixed cost.

Marginal cost means additiona cost

It is calculate by change in total cost divided by change in output

Fixed costs are short run

Varaiable costs are long run

Marginal costs often slope downward as sa firm increases its production from zero to some level sloping upward at only higher levels of productopn

Specialization can lead to increasing returns at first, and so to a downward-sloping marginal costcurve

Once there are enough workers to permit specialization, diminishing returns set in