ECON 1010 Chapter Notes - Chapter 10: Opportunity Cost, Market Price, W. M. Keck Observatory
19 Mar 2016
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Firm: a firm is an institution that hires factors of production and organizes them to produce and sell goods and services. The main goal for a firm is to maximize profit. Accounting profit: revenue costs = accounting profit. Accounting costs = explicit costs + conventional depreciation. Therefore profit = revenue (explicit costs + conventional depreciation). Economic profit: economic profit is somewhat different than accounting profit. This is total revenue total cost, where total cost is opportunity cost of production. Opportunity cost of production: is the value of the best alternative use of the resources that a firm uses in production. The opportunity cost of production is the sum of the resources bought in the market, owned by the firm and supplied by the firm"s owner. Implicit rental rate: this is the firms opportunity cost of using the capital it owns. Implicit rental rate of capital is split into two components, which are economic depreciation and forgone interest.
