Foundations of Economics, 8th Edition

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 ...