Warm Up 1.What do you think are the meaning of the following terms: Fixed costs Variable costs 2.Can you think of any examples?

Definitions Fixed costs: costs/expenses that are the same no matter how many units of a good are produced Variable costs: costs/expenses that vary (change) with the number of units of a good produced Total costs: fixed costs and variable costs added together

Examples Fixed Cost – Rent Variable Cost – Employee wages

Average Total Cost Average Total Cost (ATC) = Total Cost (TC) divided by the quantity of output (Q) ATC=TC Q Example: – Total cost is $6,000 and 1,000 units of a good are produced, then the average total cost is $6 per unit ($6,000/1,000=$6)

Marginal Cost It is one of the two factors a business must know about when deciding how much of a good it is best to produce Marginal means additional!

Example Cost increases to $6,008 with one more unit produced (1001) Change in total cost = $8 This change in total cost from producing one more unit is called marginal cost The marginal cost is $8 Marginal cost describes a change (in cost) caused by a change in something else (output) MC=

Let’s Think What are the advantages and disadvantages of businesses that have only fixed costs? Variable costs? Do they exist?

Questions A firm produces 125 units of a good. Its variable costs are $400 and its total costs are $700 – What are the firm’s fixed costs? – What is the average total cost equal to? – If variable costs were $385 when 124 units were produced, what is the total cost? What is the difference between average total cost and marginal cost?

Applying Economic Concepts An airline has 100 seats to sell on a plane. Its sells tickets for $450 each. At this price, 97 are sold. Before the flight takes off, a person says they will buy a ticket on the flight for $150. The marginal cost to the airline is $100. Is it in the best interest of the airline to sell the person a ticket for $150? Explain.

Activity Make a list of all the expenses that is incurred by Midlakes School Which costs are – Fixed – variable

Activity List problems which effect the environment Research government programs to address Evaluate costs and benefits Propose additional actions

Activity Compare and Contrast state and federal expenditures – Healthcare – Education – Police force – Welfare

Activity Personal Budget

Activity Analyze competing viewpoints about the impact of an increase in minimum wage, a new tax policy, and a change in interest rates on: – Consumers – Producers – Workers – Savers – Investors

Activity Analyze the political and economic implications of a proposed ban in imported goods

Activity Interpret and analyze “Economic Report of the President” Summarize federal and state expenditures

Stossel

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