ECON300-Exam #2 Review

I.                    REVIEW OF COST AND PROFITS

A.     Accounting vs. Economic Costs

·         Accounting (explicit) cost—The cost of acquiring things not already owned

·         Economic costs—Accounting costs + Implicit costs

·         Implicit costs—Opportunity cost of something already owned—Average ROE, ROI, ROR (profit). For Wells: Typically about 15%

·         Short Run vs. Long Run

o   Short Run—A time period too short to change the firm’s capacity. Some costs are fixed, some are variable.

§  TC = FC + VC à ATC = AFC +AVC

·         AFC = TC/Q

·         AVC = VC/Q

o   Long Run—A time period long enough to change capacity. Long enough to enter an industry/market.

·         Marginal Cost—The extra costs of producing an extra unit

o   MC = ΔTC/ΔQ

B.      Short Run Cost Curves

Short Run Cost Schedule
Powered by