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Chapter 10: Organizing production (only 10.1) (Producer theory (Economic…
Chapter 10: Organizing production (only 10.1)
Economic profit= Total Revenue – economic cost
Opportunity cost is the cost of resources bout in the market+ the cost of resources owned and supplied by the firm’s owner.
Producer theory
Types of profit
Profit = TR (total revenue) - cost
Accounting profit = TR - accounting cost
Accounting cost bought in the market
Economic profit = TR - opportunity cost
Opportunity cost (input cost) owned by the firm; supplied by the owner
Depreciation
Foregone interest
Foregone wage
Normal profit; other industries can yield
Opportunity cost > accounting cost
Economic profit < accounting profit
Firm’s Constraint
Technology constraints
Information constraints
Market constraints