Microeconomics: Production And Costs

Production and CostsFirms use economic resources to produce goods & services and incur costsFirms make monetary payments to resource owners to call them as explicit costs (ex. wages to workers)These payments/costs together with implicit costs (opportunity costs of own resources) make up the firms costs of production1 Theory of Production and CostsWe will look at:Economic Costs and profits2. Short-run Production Costs and Relationships3. Long-run Production Costs and Relationships2 Firm - a production unitEvery economy consists of thousands of firms that produce the goods and services that we enjoy everydaySome firms are large-they employ thousands of workersHave large numbers of shareholders who share in the firm’s profitsOther firms are smallThey employ a few number of people Owned by one man/ one family (sole proprietorship) or few people (partnership)3 What Are CostsAccording to the Law of Supply:Firms are willing to produce and sell a greater quantity of a good when the price of the good is higher.This results in a supply curve that slopes upwardThe Firm’s objective/goal:The economic objective / goal of the firm is to maximize profits4 Total Revenue, Total Cost and ProfitTotal RevenueThe amount a firm receives for the sale of its output.Total CostThe market value of the inputs a