Date: March 26, 2014 Topic: Costs of Production Aim: How do suppliers make production decisions? Do Now: Multiple Choice Questions.

Marginal Utility For example, if you wanted donuts you might eat one donut, then want to eat another, then want to eat another, etc. (Utility) After you have eaten a few donuts, you start not to want anymore. The thought of eating more makes you sick! (Diminishing Marginal Productivity/Utility) Definition: What is gained from an increase/decrease in a good or service.

Utility: Level of satisfaction or usefulness received from consumption of a good or service. *Your demand for products depends on this. Law of Diminishing Marginal Productivity: Your decreasing satisfaction as more of a good or service is acquired. Your utility will eventually decrease (probably hit 0)

Increasing Marginal Returns A level of production in which the marginal product of labor increases as the number of workers increase. Cut the cloth into shapes, stuff it with beans, and sew the bag closed.

As more of one resource is added, the output per unit of input may increase for a time, but eventually the increase of productivity will vanish (Law of diminishing returns)

Fixed Costs Include: The production facility, costs of building and equipping a factory, office, store or restaurant. Examples: Rent, property taxes, machinery repairs, salaries of workers (who keep the business running if production stops temporarily

Variable Costs Include: The costs of raw materials and some labor. Example: Electricity, heating bills, cost of labor- changes with the number of workers Produce more beanbags= more beans, more workers to stuff the beanbags

Is it possible that a person wouldn’t pay even $1 for this car?

How does this coupon illustrate the concept of the law of diminishing marginal utility?

How does the Law of Diminishing Marginal Productivity cause suppliers to make production decisions? How would a economic system in a recession impact the Law of Diminishing Marginal Productivity?

Spraying Strawberries A strawberry farmer plans to spray his fields to reduce mildew Here is the information the farmer has: Area: the farmer has 100 acres planted in strawberries Mildew kills strawberries; aerial spraying reduces or eliminates mildew The local crop duster makes 5 spraying passes per hire Each hire costs $50

LETS MAKE ONE OF THESE! 1.) We need 1 director of the operation. 2.) Let’s start with 1 worker and go from there.

Number of Hires Total Benefits Marginal Benefits Marginal Cost MB - MC 1$100 $50 2$200$100$50 3$270$70$50$20 4$330$60$50$10 5$382$52$50$2** 6$420$38$50($12) 7$450$30$50($20) 8$460$10$50($40) 9$460$0$50($50) 10$455($5)$50($55)