DiscussEconomics is about to being a series on introductory principles of microeconomics. This is perfect for beginner economists, those looking to brush up on some basic terms, and first year University students. I'm assuming that you can differentiate between the studies of micro and macro economics so don't expect an explanation here!
Introduction to Microeconomics
There are fundamental assumptions when using microeconomic models while you're trying to explain consumer and market behaviour. Firstly, firms (businesses) are assumed to operate with the fundamental intention of maximizing profits. Here are some more terms that are useful:
Total Revenue (TR):
- Is the amount that firms receives for the sale of its product
TR = Price x Quantity
= P x Q
Recall that a firm's cost of production include:
- Explicit costs - direct money outlay for factors of production.
Implicit or "imputed" costs - Do not involve a direct money outlay.
Cost-output relationships
Fundamental point in cost analysis
***A functional relationship exists between the costs of production and the rate of output per period of time (ie. productivity)***
Cost function:
- Indicates what the cost will be at alternative output rates
Cost = f (output)
But we know from our production analysis that:
- outputs = f (inputs)
***Consequently, the level and behaviour of costs as a firm's rate of output changes depend on:
- 1. The character (shape) of the production function;
2. The prices the firm must pay for its inputs.
[tags]intro microeconomics, introductory microeconomics, microeconomics, cost production[/tags]
Trackback |
Econ Tags: Other Economics Articles
Comments ( 1 Comment )
Being an ignorant I decided to look up what the difference between implicit and explicit costs is. So here an example for everybody.
From Wikipedia:
Implicit Cost + Explicit Cost = Total Cost. Implicit cost is NOT equal to total cost, but a component of it. A simple example: Paul builds a cabinet. He spends 2 hours building the cabinet. He could have been working instead and normally makes $25/hour at his job. Since he was building a cabinet he wasn't paid for this time. The materials to make the cabinet cost him $20.
* His Explicit Costs are: $20 in materials
* His Implicit Costs are: $25/hr x 2 hrs= $50 of foregone pay
* His Total Costs are: $20 in materials + $50 of foregone pay = $70 Total Costs
ciaooo