Journaling of Chapter 13: The Costs of Production

     Chapter 13 titled The Costs of Production, discusses the part of economics called industrial organization. Industrial organization is the study of how firms’ decisions about prices and quantities depend on the market conditions they fare. This chapter also compares and contrasts the ideas of economists and accountants. Accountants are only concerned with a firm’s flow of money so they only record explicit costs. However, economists are concerned with a firm’s overall decision making so they are concerned with total opportunity costs, which is the sum of explicit costs and implicit costs. Explicit costs are input costs that require money from the firm. Implicit costs are input costs that don’t require an outlay of money by the firm. Thus, economic profit is total revenue minus the sum of explicit costs and implicit costs. But accounting profit is total revenue minus explicit costs only. Chapter 13 also talks about productions functions and processes in the short run using curves. For instance, production functions show diminishing marginal product which is when the marginal product of an input declines as quantity increases. It also displays the total-cost curve which shows the relationship between the quantities of output being produced versus the total cost of production. Readers are also introduced to the average-total-cost curve and the marginal-cost curve. Division of costs between fixed and variable also depends on the time horizon.

     I would give Chapter 13 a difficulty rating of 2 out of 3. It started off being very straight forward and clear but as the chapter went on, the material built up. Hopefully, I will understand cost curves more before I move onto the following chapters.