Essential Question How much of a good or service should a business produce?

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Presentation transcript:

Essential Question How much of a good or service should a business produce?

Labor and Output Marginal product of labor – the change in output from hiring one more worker

Labor & Output Increasing marginal returns – the marginal product of labor increases as the number of workers increases Diminishing marginal returns – the marginal product of labor decreases as the number of workers increases.

Marginal Product of Labor Labor (number of workers) Output (beanbags per hour) Marginal product of labor

Marginal Returns

Production Costs Fixed Cost – cost that does not change, no matter how much of a good is produced. – Ex. Rent, salaries, machine repairs Variable Costs – Costs that rise or fall depending on the quantity produced. – Ex. Electricity, heat

Production Costs Total costs = fixed costs

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