Measuring Costs & Revenues  Essential Skill: Demonstrate an understanding of Economic Analysis  Fixed Costs: Don’t change with the amount produced (e.g. rent, insurance, property taxes)  Variable Costs: Change based on how much a business produces (e.g. wages, materials, utilities)  Total Costs = Fixed Costs + Variable Costs  Marginal Cost: the additional or extra opportunity cost related to an increase in unit of sales  Marginal Revenue: the additional income received from each increase in unit of sales

Marginal Analysis  Question: How is Marginal Revenue different from Marginal Profit (“Profit Margin”)?  Answer: Profit Margin = Marginal Revenues – Marginal Costs

Benefit-Cost Analysis  What is a benefit-cost ratio, and how is it used?  Benefit-Cost Ratio = Revenue/Cost  It tells us which project will yield more $  When should we use marginal analysis, and when should we use benefit-cost analysis?  Marg. Anal. tells us how much of a product to make. Ben.-cost anal. tells us which product to make.

Complete pg. 1 of Benefit Cost Analysis Worksheet  Use your notes to do pg. 1 (if you finish early, do pp. 2&3)  Use the data below to graph 2 lines: 1 line for marginal revenue & 1 line for marginal cost (USE TWO COLORS!)  QuantityMarg. Rev.Marg. Cost  50$.07$.04  100$.07$.035  150$.07$.03  200$.07$.05  250$.07$.07

Questions for Graphs: 1.At which unit is the best MARGINAL profit (“profit margin”)? 2.Where is the break even point? 3.At which unit is the best TOTAL profit? 4.How many units would you recommend producing?