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AOF Business Economics

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Presentation on theme: "AOF Business Economics"— Presentation transcript:

1 AOF Business Economics
Unit 4, Lesson 9 How the Interactions of Businesses and Consumers Determine Prices Copyright © 2008–2012 National Academy Foundation. All rights reserved. Copyright © National Academy Foundation. All rights reserved.

2 Companies want to be profitable
Companies must balance what it costs to produce their product with what the market will pay for it. Companies can determine this balance using the data in production, cost, and revenue schedules. Information from these schedules can help managers adjust operations to maximize profits. When considering production, how do businesses maximize profits? Copyright © National Academy Foundation. All rights reserved.

3 The production schedule presents information on worker productivity
How many workers the company has How much the company produces How much more is produced with each additional worker When adding additional workers no longer increases productivity Production Schedule Marginal Returns Number of Workers Total Product Marginal Product Increasing 1 10 2 23 13 3 41 18 4 65 24 5 93 28 Decreasing 6 113 20 7 132 19 8 141 9 147 151 Negative 11 148 -3 12 138 -10 Copyright © National Academy Foundation. All rights reserved.

4 The cost schedule presents information on the costs associated with production
No. of Workers Goods Produced Fixed Costs Variable Costs Total Cost Marginal 100 -- 1 10 200 2 23 300 8 3 41 400 6 4 65 500 5 93 600 113 700 7 132 800 141 900 11 9 147 1000 17 151 1100 25 148 1200 ** 12 138 1300 **Marginal cost is the cost for each unit of extra output, and here there is no extra output. Copyright © National Academy Foundation. All rights reserved.

5 The revenue schedule presents information on revenue and profit
Number of Workers Total Revenue Increase in Revenue Marginal Revenue Total Margin (%) -100 No profit 1 170 17 -30 -18% 2 391 221 91 23% 3 697 306 297 43% 4 1105 408 605 55% 5 1581 476 981 62% 6 1921 340 1221 64% 7 2224 303 1444 65% 8 2397 173 1497 9 2499 102 1499 60% 10 2567 68 1467 57% 11 2516 -51 ** 1316 52% 12 2346 -170 1046 45% **Marginal revenue is the gain in revenue from each extra unit of output. Here there is no extra output. Copyright © National Academy Foundation. All rights reserved.

6 Tables like this show the “break-even point” and the scale of production that maximizes profit
Production Schedule Costs Revenues Profit Workers Total Product Marginal Product Total Fixed Cost Total Variable Costs Total Cost Marginal Cost Total Revenue Marginal Revenue Total Profit 100 -100 1 10 200 170 17 -30 2 23 13 300 8 391 91 3 41 18 400 6 697 297 4 65 24 500 1105 605 5 93 28 600 1581 981 113 20 700 1921 1221 7 132 19 800 2244 1444 141 9 900 11 2397 1497 147 1000 2499 1499 151 1100 25 2567 1467 148 -3 1200 2516 1316 12 138 -10 1300 2346 1046 1 2 Copyright © National Academy Foundation. All rights reserved.

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