All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, accounting profit will be understated.
84) After the former CEO of the Coca-Cola Company began requiring employees to treat the rate of return on shareholder equity as an explicit cost, Coke's profits increased considerably.
85) A firm's short-run cost functions depend primarily on the firm's production function and the prices of the inputs to production.
86) So long as marginal cost is greater than average variable cost, both average variable cost and average total cost must increase as output is increased.
87) All else constant, an improvement in technology would cause a firm's marginal, average variable, and average total cost functions to increase (graphically, shift up).
88) In the short run, a firm can minimize its total costs of production by operating at the minimum of its average total cost curve.
89) Assume that at the current level of output a firm's marginal cost and average variable cost of production are both decreasing. Based on this, we can conclude that the marginal product and average product of the firm's variable input(s) are both increasing.
90) Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.
91) According to a study by Blinder et al., on average, fixed costs account for about 44 percent of firms' total costs of production, suggesting that fixed costs are more important to many firms' decision-making processes than standard theory would suggest.
92) Economic theory provides insights into the range of possibilities for cost relationships. Studies such as those by Blinder et al. provide insights into where, within that range, many firms operate. Thus, there is no real conflict between theory and reality, as some people might try to claim.
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