ECON 1000 Chapter 10.1: Organizing Production: The Firm and Its Economic Problem
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ECON 1000 Full Course Notes
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Reading 4 - chapter 10. 1, 11, & 12. Each firm is an institution that hires factors of production and organizes those factors to produce and sell goods and services. A firm"s main goal is to maximize profit. A firm that does not seek to maximize profit is either eliminated or taken over by a firm that does seek that goal. Depreciation is the fall in the value of a firm"s capital. Economic profit is equal to total revenue minus total cost, with total cost measured as the opportunity cost of production. Economists measure a firm"s profit to enable them to predict the firm"s decisions, and the goal of these decisions is to maximize economic profit. Accountants measure a firm"s profit to ensure that the firm pays the correct amount of income tax and to show its investors how their funds are being used. Opportunity cost is the highest valued alternative forgone.
