Chp 13

Chapter 13 examines firm behavior in more detail beginning with a discussion on costs. The amount a firm pays to buy inputs is called total cost. A firm's cost of production includes all opportunity cost of making its output of goods and services. Aside from opportunity cost a firm also deals with explicit and implicit cost. An explicit cost is an implicit cost that requires an outlay of money by the firm, such as Helen paying wages. An implicit cost is one that does not require an outlay of money by the firm which is basically just opportunity cost, an example being Helen giving up the income she could earm as a programmar.  Profit is a firm's total revenue (amount received from sales) minus it's total cost (implicit plus explicit). In terms of weighing out these factors the author threw shade at accountants because they often times ignore implicit costs whereas an economist takes into consideration both. Another difference between an accountant and economist is the way profit is measured. An economic profit is the total revenue minus total cost, including both explicit and implicit costs. The accountant profit is the total revenue minus total explicit cost. For a business to be profitable total revenue must cover all opportunity cost (implicit and explicit). Production function is the relationship between quantity of inputs used to make a good and the quantity of output of that good. The  marginal profuct is the increase in output that arises from an additional unit of input. The marginal product in the cookie factory if the number of workers increase from 1 to 2 and cookie production from 50 to 90 would be 40. When the marginal product of an input declines as the quantity of the input increase is called diminishing marginal product.