Chapter Summary

Key Points

  1. Explain and distinguish between the economic and accounting measures of a firm’s cost of production and profit.

    • Firms seek to maximize economic profit, which is total revenue minus total cost.

    • Total cost equals opportunity cost—the sum of explicit costs and implicit costs, which include normal profit.

  2. Explain the relationship between a firm’s output and labor employed in the short run.

    • In the short run, the firm can change the output it produces by changing only the quantity of labor it employs.

    • A total product curve shows the limits to the output that the firm can produce with a given quantity of capital and different quantities of labor.

    • As the quantity of labor increases, the marginal product of labor increases ...

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