How do Firms Calculate Costs?

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Presentation transcript:

How do Firms Calculate Costs? Fixed cost or variable cost? Profit or revenue? Marginal cost?

Remember: Cost does NOT equal Price Price is what consumers pay Cost is an expense to the supplier Examples of costs: Wages of employees Flour for a pizza parlor Green paint for John Deere Gas for a Taxi cab

FIXED COSTS- costs that stay the same regardless of quantity supplied EXAMPLES -rent -property taxes -management salary

VARIABLE COSTS- costs that change as quantity supplied changes EXAMPLES -labor -raw materials

College Board Vice President Trevor Packer AP Exam Readers College Board Vice President Trevor Packer Readers- VC Managers- FC

Salt Palace Convention Center Rent- FC

Shipping costs to ship 250k exams securely Shipping- VC

FC- rent, machinery repair, property tax, mgr salary VC- employees, cups, beans, ingredients

List Examples: -Fixed costs -Variable costs FC- cost of the land, tools (short term), property tax VC- compost, seeds, water, chemicals

ASSIGNMENT Watch as I demonstrate how to calculate costs Work together to practice cost calculation Calculate on your own and check your answers Be prepared for Monday quiz over costs TC= FC + VC TR= PxQ Profit= TR-TC MC= change in TC per unit of output MR= change in TR per unit of output

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