What does the term Law of Supply mean? Law of Supply means suppliers will normally offer more for sale at higher prices and less for sale at lower prices.

What factors determine the cost of producing a product? Factors that determine the cost of producing a product include: costs of land, labor, capital, technology, taxes, and government regulations.

Why do supply and demand curves slope in opposite directions? They slope in opposite directions because high prices cause the supply to go up. High prices cause the demand to go down.

What might happen to make a producer decrease his or her supply of product? A decrease in supply may be caused by an increased cost in resources; low worker productivity; adjustments to new technology; high taxes; few or no subsidies; increased government regulations; a reduction in the number of sellers; and fearful expectations.

How does the production of a product affect the elasticity of supply? It depends on the type of product. If a company can adjust production to new prices quickly, then there is elasticity of supply. If the company cannot make production adjustments quickly enough, then the supply is likely to be enalstic.

Why don’t economists consider the effects of changes to technology when focusing on the short run? Changes in technology cannot be made quickly, so they do not affect production in the short run.

What is marginal product? Marginal product is extra output due to the addition of one more unit of input. Example: First worker produces 7 products with an additional, or second worker, they produce 20 products so the marginal product is 13 which is the difference between having one worker as opposed to two.

When does marginal product equal total product? Marginal product equals total product with the first worker.

Why does a manager need to know both total product and marginal product when making business decisions? A business manager wants to maximize total product. To do that efficiently, he or she must know how adding each extra unit of input affects marginal product and thereby how it contributes to total product.

Why is marginal product an important concept for business owners to understand? As long as marginal product continues to rise, the business is operating profitably.

How can stages of production be used to determine the most profitable number of workers to hire? (there are 3 stages) In stages 1 and 2, each additional worker hired continues to add to production, although returns are diminishing in stage 2. At stage 3, adding employee causes negative marginal returns because too many employees interfere with production.

What is the difference between marginal revenue and total revenue? Total revenue is all the revenue a company receives. Marginal revenue is the extra revenue received from selling one more unit.

What is the relationship between costs and revenue? If costs exceed revenue, the company loses money. If costs and revenue are equal, the company breaks even, but does NOT earn a profit. It’s necessary to find a balance in which revenue exceeds costs to achieve profit.

What is the difference between fixed cost and variable cost? A fixed cost des not change regardless of how much a business produces. A variable cost changes as the business produces more, hires more workers, or cuts back on production.

What is the difference between average revenue and marginal revenue? Average revenue is the average price of each unit of output. Marginal revenue is the extra revenue received from the production and sale of one additional unit of output.

What cost advantage does e-commerce offer business? An e-commerce business does not require a physical store or many of the other fixed costs of a traditional store, so its fixed costs and break- even point are lower.