Paying Bills Warm Up: What are some bills your parents pay monthly? What must a producer consider when setting a price for the product being sold?

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Presentation transcript:

Paying Bills Warm Up: What are some bills your parents pay monthly? What must a producer consider when setting a price for the product being sold?

Total Costs = Fixed + Variable Fixed Costs: –Constant costs that a firm pays regardless of production, must pay even if producing NOTHING!! Examples: Variable Costs: –Costs that change as production changes, must pay as increase output Examples: Rent/Mortgage, Taxes, Insurance, Interest on Loans, Salaried Employees Hourly Wages, resources, utilities, packaging, shipping, & advertising COSTS OF DOING BUSINESS

Revenue = Price × Quantity Sold Revenue: –The money earned from the sale of the g&s. Profit: The extra money earned after paying costs Profit = Total Revenue – Total Costs = (p × q) – (FC + VC)

In Your Notebook: What is the formula for determining profit for a company? Use it to determine if these companies are making profits: Company A: Price of Good = $10 Quantity Sold = 120 Fixed Costs = $300 Variable Costs = $750 Company B: P = $5 Q = 600 F.C. = $900 V.C. = $2500 Company C: P= $20 Q = 400 F.C. = $1500 V.C. = $6200 Company D: P= $7 Q = 300 F.C.= $600 V.C. = $1500

Final Cost of Output How do entrepreneurs determine the price they charge? 1.Calculate the costs to produce the good (and charge more). 2.Analyze amount of competition in industry; how much power does one business have