Review Notes - The Firm and Production

- Organization of the firm.

- Single Proprietorship - Advantages and Disadvantages.

- Partnership - Advantages and Disadvantages.

- Corporation - Advantages and Disadvantages.

- Definitions.

- Production function, Q = f(K, L, N, E). What does it mean?

- When does production occur? When goods are transformed to make them more valuable in form, place, possession, or time.

- short-run = a period of time during which a least one input is fixed.

- long-run = a period of time during which all inputs are variable.

- very long-run = a period of time during which all inputs are variable as is technology.

- Economic costs of production.

- explicit costs = require direct payments for inputs.

- implicit costs = the opportunity cost of inputs which do not require direct payments like lost wages, interest, rent, etc.

- total costs = explicit costs + implicit costs.

- Profits.

- Accounting profit = total revenue - explicit costs.

- Economic profit = total revenue - total costs (explicit + implicit costs).

- "Normal" profit = implicit costs (what a business would normally need to make in accounting profits to just stay in business. Thus, when accounting profits are normal economic profit = 0).