ECON 1000 Chapter Notes - Chapter 10: Opportunity Cost, W. M. Keck Observatory
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23 Mar 2016
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Firm = an insituion that hires factors of producion and organizes them to produce and sell goods and services. The irm"s goal is to maximize economic proit. A irm that does not maximize proit is either eliminated or bought out by other irms. Accountants measure a irm"s proit to ensure that the irm pays the correct amount of tax and to show investors how their funds are being used. Economists measure a irm"s proit to enable them to predict the irm"s decisions, and the goal of these decisions is to maximize economic proit. Economic proit = total revenue minus total cost, with total cost measured as the opportunity cost of producion. A irm"s opportunity cost of producion is the value of the best alternaive use of the resources that a irm uses in producion. A irm"s opportunity cost of producion is the sum of the cost of using resources: bought in the market.
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