Chapter 3 The Firm Makes Choices: Costs The Market
Chapter 3 The Firm Makes Choices: Costs & The Market
3. 1 INDUSTRIES AND PRODUCTION PROCESSES Industry It consists of a firm or a number of firms that use like processes to produce their outputs Production Value added Production tree inputs→ processes or activities.→ outputs
3.1 INDUSTRIES AND PRODUCTION PROCESSES • Industry – It consists of a firm or a number of firms that use like processes to produce their outputs. • Production – Value added – Production tree – inputs processes or activities outputs
3.2 COST FACIG THE FIRM Factors of production Natural Human Resources Human Resources Manufactured esources(manual functions)(mental functions)Resources Raw materials, Production work, Management P rocess Fuel Cl erical wor arkeTing machinery, Property on Cleaning work Commercia Machinery wnIc advice arts activities take Office ace equipment
3.2 COST FACIG THE FIRM • Factors of production Natural Resources Human Resources (manual functions) Human Resources (mental functions) Manufactured Resources Raw materials, Fuel, Property on which activities take place Production work, Clerical work, Cleaning work Management, Marketing, Commercial advice Process machinery, Machinery parts, Office equipment
3.2.1 Total revenue. Total Cost, and Profit Total revenue the amount a firm receives for the sale of its output Total cost the market value of the inputs a firm uses in roduction Profit Profit Total revenue -Total cost
3.2.1 Total Revenue, Total Cost, and Profit • Total Revenue – the amount a firm receives for the sale of its output. • Total Cost – the market value of the inputs a firm uses in production. • Profit – Profit = Total revenue - Total cost
Cost as Opportunity Cost Explicit Costs input cost that require an out lay of money by the firm Implicit Costs input costs that do not require an outlay of money by the firm Choice 1 deposit=$ 300, 000(interest rate=5% Choice 2 deposit$ 100,000 borrowed capital=$ 200,000
Cost as Opportunity Cost • Explicit Costs – input cost that require an outlay of money by the firm • Implicit Costs – input costs that do not require an outlay of money by the firm • Choice 1 – deposit=$300,000 (interest rate=5%) • Choice 2 – deposit=$100,000 – borrowed capital=$200,000