1.What three decisions are made by profit maximizing firms?
2.Differentiate profits from economic costs.
3.What is the most important opportunity cost included in economic costs?
4.Differentiate long run and short run decisions made by firms.
5.Differentiate production process from production function; marginal product and the law of diminishing returns; fixed costs and variable costs.
6.How does the firm goes about determining how much output to produce?
(1)
(2)
Economic profit is given by revenue minus opportunity and monetary costs. Accounting profit is given by total monetary revenue minus total costs.
On the other hand, economic costs are a combination of losses of any goods that have a value attached to them by any one individual. They include implicit and explicit costs, fixed costs and variable costs, marginal costs.
(3)
Implicit cost is the most important opportunity cost included in the economic costs because it helps mangers to make effective decisions for the company.
(4)
long-run
short run
(5)
(6)
A firm determines how much output to produce on the basis of its total revenue and total costs curve.
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