LEARNING TARGET: I CAN EXPLAIN PROFIT MAXIMIZATION. WARM UP: 1. LABEL YOUR PAPER (LECTURE NOTES TODAY) WITH: HOW DO BUSINESSES DETERMINE HOW MUCH TO PRODUCE?

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LEARNING TARGET: I CAN EXPLAIN PROFIT MAXIMIZATION. WARM UP: 1. LABEL YOUR PAPER (LECTURE NOTES TODAY) WITH: HOW DO BUSINESSES DETERMINE HOW MUCH TO PRODUCE? 2. WHY DO YOU THINK THAT E-COMMERCE (AMAZON, EBAY, ETC.) IS APPEALING TO SO MANY SELLERS? Welcome! Wednesday, December 9, 2015

Reminders & Announcements This week: Finish review, into business plan  Tomorrow: Quiz retakes Next week: Move into personal finance

Business Types What are the pros and cons of the different types? What’s a nonprofit? What’s the difference between a vertical and a horizontal merger?

The Production Function Three stages: Stage 1 – rapid growth; Stage 2 – increasing growth, but slower; and Stage 3 – decreasing growth

Costs – Several Types Fixed Costs (AKA Overhead): Costs that happen no matter how much you produce. Examples: rent, taxes, salaries for management, depreciation (DEFINE). Variable Costs: Costs that change along with how much is produced. Examples: raw materials, salaries for lower-level workers Total Cost: The total of fixed and variable costs for all items produced. Marginal Cost: The extra cost from producing one more unit of output.

Applying Cost Principles Why has e-commerce (Ebay, Amazon, etc.) exploded? Break-even point: When total revenue equals total cost.

Marginal Analysis & Profit Maximization Revenue: How much money is made (this is before counting it against costs!!!)  Total: The # of units sold x the average price/unit.  Marginal: The extra received from selling one more unit. Marginal Analysis:  Comparison of the extra costs to the extra benefits. Very common, for example, in making hiring decisions. Profit Maximization:  When MC=MR profit is maximized  When MC is lower than MR, you should expand  When MR is lower than MC, you should cut back production

Quick Check – do INDEPENDENTLY How is marginal analysis useful to a business? Using the chart on page 134, how many workers should this business hire? If the total output of a business increases, what will happen to fixed costs? To variable costs?

Business Week Let’s read page 138. Discuss the questions at the end + some businesses try to appeal to consumers through ways other than lower price. As an example “Made in America” or “Support small business – keep dollars in the community.” Which of these is more persuasive and why?