Review Notes - The Firm and Production
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- 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).
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