FrontPage: NNIGN Last Word: CH 5 Review and Quiz next week Life-Changing Tip Of The Day: Reverse Your Hoodie

What factors in to the “price” side of the graph? Chapter 5, Section 2 WHAT ARE THE COSTS OF PRODUCTION?

Labor is a cost for producers  Question: Will more labor always = more output?  Short answer – NO  Marginal Cost is the extra cost of producing one more unit.  Marginal product is the change in total output brought about by adding one more worker.  A marginal product schedule shows the relationship between labor and marginal product.

Marginal Product Schedule Number of WorkersTotal ProductMarginal Product Increasing returns occur when hiring new workers causes marginal product to increase Diminishing returns occur when hiring new workers causes marginal product to decrease

 Fixed costs are expenses that the business owner must pay no matter how much or little they produce  Lighting in factory, rent for store, machinery, etc.  These don’t change in the short run  Variable costs depend on the level of production output.  Wages/salaries and raw materials are a good example of this  These do change as production level changes  Total cost is the sum of fixed and variable costs.

Production Cost Schedule Number of Workers Total Product Fixed Costs ($) Variable Cost ($) Total Cost ($) Marginal Cost ($)

Where is highest profit? Total product = total revenue/ marginal rev Total cost (fixed and variable costs) = profit – total revenue Marginal cost = Change total cost/ change total product Marginal revenue = price of item Total rev = product x marg cost

Practice

Equations for the chart  Total product = total revenue/marginal rev  Total cost (fixed and variable costs) = profit – total revenue  Marginal cost = total cost/ total product  Marginal revenue = cost of one unit (price of item)  Total revenue = product x marginal cost