Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 5 Firm Behavior and the Organization of Industry
Chapter 13 of 36 The Costs of Production
Section 2 of 20
…
Here we begin looking at a part of economics called industrial organization.
We will see of how firms' decisions about prices and quantities depend on the market conditions they face.
…
Consider the costs at a hypothetical “Caroline's Cookie Factory.”
By examining Caroline’s costs, we learn lessons about costs that apply to all firms.
The firm owner Caroline buys and hires
· mixers, ovens and other equipment
· cookie ingredients including flour, sugar, chocolate chips
· workers to run the equipment
…
A possible reason Caroline started her firm was an altruistic desire to provide cookies for others out of love for people and the cookie business.
Most likely the main reason Caroline started her business was to make money.
Economists assume the goal of a firm is to maximize profit.
The amount the firm receives for the sale of its output is called its total revenue.
The amount the firm pays to buy inputs is called its total cost.
The firm owner keeps any revenue left after costs, called its total profit.
Profit = total revenue - total cost
…
To see how a firm maximizes profit, we must consider how to measure its total revenue and total cost.
Total revenue is straightforward.
Total revenue = quantity of units sold times price of units.
If Caroline produces 10,000 cookies and sells them at $2 each, her total revenue is $20,000.
Measurement of a firm's total cost is subtler because it includes opportunity costs.
… …
altruistic desire
rita yokkyū
利他欲求

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