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.
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 ...