Chapter 10 Flashcards
Explicit costs
Costs paid directly in money for resources bought in the market.
List implicit costs
- Economic depreciation
- Forgone interest
- Entrepreneurship (normal profit)
- Owner’s labour services
Entrepreneurship as implicit cost refers to…
risks that the owner takes to produce goods and services - thus the firm “pays” the entrepreneur therefor (dividends etc.)
Opportunity cost of entrepreneur leaving another firm to start this one.
Normal profit
The average profit that the owner would’ve expected to earn in another industry.
Economic profit
A firm’s total revenue minus its total cost
π = TR - TC
A firm’s total cost of production
The sum of the explicit and implicit costs.
Economic profit vs accounting profit:
Accounting profit = TR - accounting (explicit) costs
Economic profit = TR - opportunity cost of production (TC)
The firm’s profit is limited by 3 features of the environment:
- Technology constraints
- Information constraints
- Market constraints
Economic Efficiency
When the firm produces a given level of output at the least cost.
Difference between Technological and Economic efficiency
Tech-Efficiency concerns the quantity of inputs used
Economic-Efficiency concerns the cost of the inputs used
4 Market types
- Perfect competition
- Monopolistic competition
- Monopoly
- Oligopoly
