Informal lecture notes.
Economists, unlike accountants, will consider opportunity costs. Recall, that the opportunity cost is all that was given up for getting something.
One way to look at it would be to add explicit costs and implicit costs. Say Caroline is setting up a cookie factory and uses $300 of flour per day. In addition, Caroline had to give up her job as a professor where she earned $100 per day.
Implicit costs: $100
explicit costs: $300
Caroline’s total cost is $400 per day.’
In the short-run, some costs are fixed. These are costs that do not vary with the quantity of output produced. That is the firm will pay fixed costs even when it produces nothing.
by the firm.