EC120 Midterm: MIDTERM 2 Review - Chapters 7-12 Notes from textbook - November 6, 2018
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Chapter 7 - producers in the short run. Production is organized either by private-sector firms which take four main forms single proprietorships, ordinary partnerships, limited partnerships, and corporations or by state-owned enterprises and non-profit organizations. Modern firms finance themselves by selling shares, using their retained earnings, or borrowing from lenders, such as banks. A firm"s profit is the difference between its total revenue and its total costs. Economists usually assume that firms attempt to maximize profits. The production function relates inputs of factor services to output. Accounting profit is the difference between the firm"s revenues and its explicit costs, including labour costs, capital costs, the costs of intermediate inputs, and depreciation. Economic profit is the difference between the firm"s revenues and total costs, including both explicit and implicit costs. Implicit costs include the opportunity cost of the owner"s time and capital. Economic profits play a key role in resource allocation.
