1. Max’s Cartoon Cakes

2. Objectives To understand the different types of costs that a business might have To understand how a firm calculates its sales revenue To understand how profit is calculated To understand the link between supply and demand in the cake market

3. The aim of the game is … … to make more profit than the other firms competing in the same market

4. Fixed Costs Costs that do not vary with output eg rent, insurance Fixed costs per month for Max: £4,000

5. Variable Costs Costs that do vary with output eg flour, eggs, sugar (raw materials) Variable costs for one crate of cakes produced: £1,000

6. FixedCosts VariableCosts Total Costs + =

7. Sales Revenue The money received from customers when they pay for goods. Price x Number of goods sold: £3 x 10 = £30

8. Profit Sales-Total =Profit RevenueCosts(or loss) £500-£200=£300

9. Decisions each month: How many crates of cakes shall we produce? (Output) How much shall we charge for each crate? (Price)

10. Price you should charge: Between £2,000 and £10,000 per crate of models Number of crates you should make: Between 2 and 10 crates What I will buy: Cheapest price8 crates Next cheapest6 crates Next cheapest4 crates Most expensive2 crates

11. Is it a good idea to charge a high price and produce 8 crates of models?

12. True or False? A fixed cost is a cost that does not vary with output True

13. True or False? The money received from customers when they pay for goods is called sales revenue. True

14. True or False? An example of a variable cost is rent. False

15. True or False? Sales revenue is a business cost. False

16. True or False? An example of a variable cost in Max’s business is flour (a raw material). True

17. True or False? If you charge a low price, a customer will always buy your product. False

18. True or False? When the price of a good is increased, demand will usually decrease. True

19. True or False? When the price of a good is increased, demand will always decrease. False

20. True or False? If demand for a product decreases, a firm will probably reduce output. True