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LU 5 :PRODUCTION THEORY (Firm (definition (an organization, come into…
LU 5 :PRODUCTION THEORY
Firm
definition
an organization
come into being
a person/ a group of people
decides to produce
G&S to meet demand
objective
maximize profits
Cost
definition
what you give up to get it
types
Explicit
visible cost
pay salary
Implicit
invisible cost
opportunity cost of the owner's time
Profit/Revenue
definition
money that firm received by selling their own product
Revenue + Cost = Profit
TR = P X Q
Marginal Cost
the increase in TC from producing one more unit
MR = TR1 -TR0 / Q1 - Q0
AR = TR/ Q