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ADF_Econ_Micro_Notes

The document discusses the distinction between economic profit and accounting profit, emphasizing that non-money costs are still considered costs. It highlights the difference in timeframes for firms to expand their operations, using examples of a street vendor and a large automaker like Ford. The main objective for a firm is to maximize economic profit, which is calculated as total revenue minus total costs, including normal profit.

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8 views

ADF_Econ_Micro_Notes

The document discusses the distinction between economic profit and accounting profit, emphasizing that non-money costs are still considered costs. It highlights the difference in timeframes for firms to expand their operations, using examples of a street vendor and a large automaker like Ford. The main objective for a firm is to maximize economic profit, which is calculated as total revenue minus total costs, including normal profit.

Uploaded by

learnft2025
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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◼ 14.1 Economic Cost and Profit

• Note that there is always a persistent confusion between economic profit and accounting profit.
• Keeping this in mind, non-money cost is still cost.

• Note that the difference between the long run and short run is not related to calendar time.
• Compare the street vendor, who is a firm owner operating out of a food truck, to the giant automaker firm,
Ford.
• How long would it take for the food vendor to double the size of his or her plant (truck, oven, etc.) versus
Ford to double its plant size(factory buildings covering multiple blocks, sophisticated computerized assembly
lines and robotics, etc.)?
• Realize that the length of time covered by the long run differs among firms.
• To increase its output in the short run, a firm must increase the quantity of labor employed.

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Activity

• A firm’s objective is to maximize economic profit, which is the difference between total revenue (the price of
the firm’s output multiplied by the quantity sold) and its total cost of production. Part of the total cost is the
normal profit.

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