ECON101: Principles of Microeconomics

A firm's decision regarding the quantity of output to produce depends on the market structure where it operates (we learn about market structures in Unit 7) and the cost of production. The analysis of production costs takes us back to Unit 1 – we need to consider the direct costs and the opportunity costs of production, also known as implicit costs.

Watch this video on the difference between accounting costs (direct costs) and economic costs (explicit and implicit costs). You might have to readjust your thinking about what cost means in economic analysis.