ECN 104 Chapter Notes - Chapter 7: Average Variable Cost, Average Cost, Fixed Cost
11 May 2016
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Explicit costs flow to factors of production owned and supplied by others; implicit costs are payments for the use of self-owned and self-employed factors of production: one implicit cost is a normal profit to the entrepreneur. Economic profit occurs when total revenue exceeds total cost (=explicit costs. Lower input prices shift cost curves downward, as does technological progress. Chapter 7: the firm and the costs of production: higher input prices shift cost curves upward. Economic cost-a value equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product. Explicit costs-the monetary payments a firm must make to an outsider to obtain a resource. Implicit costs-the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equals what the resource could have earned in the best-paying alternative employment (including a normal profit)
