The production and cost in the firm deals strongly with the supply side of the market. Firms produce goods and services by combining various resource inputs and then selling the finished goods to consumers or other firms. Production involves technical processes and physical relationships; for example, steel is produced by using iron ore, coal, and other materials. Costs are related to production because all resources have opportunity costs. The costs of production are then related to supply curves. This analysis applies not to just one but all firms. My next couple paragraphs will be a totally break down of the Production and Cost in the Firm.
Average product of labor( APl) = Q / L.
With increasing marginal returns (produced), total product is increasing at an increasing rate When marginal product is decreasing but is still positive, total product is increasing at decreasing rate. When marginal product equals 0, total product is at a maximum. When marginal product is negative, total product is falling.
To be comfortable with the above relationships picture a graph by using the data in the table. Opportunity cost is the foregone income that the owner of a resource could have made by spending time working in another job. Explicit costs (or direct costs) are actual cash payments. .
For example: salaries and wages, sales taxes, utilities( gas and electricity), insurance, the cost of raw materials and so on. Implicit costs are the opportunity costs of the resources that the producer does not buy or hire but already owns. Why do economists and accountants measure profit differently? The accountant is interested in reporting, on a consistent basis, the revenues minus direct costs of doing business. Economists want to understand behavior and opportunity costs are a crucial part of decision-making. Accounting measure of costs are the direct costs that can be measured.
Accounting profit: total revenue less total direct costs: Economic costs: total costs including explicit costs and the opportunity costs of the resources that the producer does not buy or hire but already owns.
