1. Brief Response Explain the difference between elastic demand and inelastic demand (2). When a good or service has elastic demand, people will respond quickly to a change in price. When it has inelastic demand, people will not change their demand even if there is a large change in price.

3. Microeconomics Ch 5, sects 2 & 3

4. Section 2 Theory of Production 122 relationship between the – Factors of production – Output of goods and services

5. Short run 122 period of production that allows producers to adjust ONLY the amount of the variable input called labor. – Ford laying off 300 workers in a factory

6. Long run 122 a period of production long enough for producers to – Adjust the quantities of all their resources Including capital – Ford closes down an entire factory – Or – Ford puts in new machinery, retools parts, changes labor,

7. Law of Variable Proportions 122 in a short period: Output will change as one input is varied Other inputs stay the same – Ex.: farmer Changes fertilizer Same machines Same Laborers Same Land – Affects output by varying fertilizer

8. Production function 123 Used in the Law of Proportions describes the relationship between – Changes in output – Different amounts of a single input While other inputs are held constant

9. Raw materials 123 unprocessed natural products – Used in production Factor of production

10. Total product 123 the total output produced by a firm.

11. Marginal product 124 The extra output or change in total product caused by the addition of ONE more unit of variable input. Producer must watch to be able to decide whether the cost of making that next unit is worth it or not. It is important to producers to avoid wasting resources and capital that cut into profits and efficiency.

12. Stages of production 4/17 125 increasing production Diminishing returns (but still making money compared to input costs) Negative returns (losing money compared to input costs) EC: Where are the two marginal product points? Marginal Product

13. Diminishing returns 125 the stage where output increases at an increasingly slower rate As more units of variable input are added

14. Section 3 p. Terms: Fixed cost 127 the cost that a business incurs even if the plant is idle and output is zero

15. Overhead 127 Total fixed cost of operating a business Includes: – Salaries/wages/insurance – Interest charges on bonds/loans – Rent/lease payments – Maintenance/upkeep/insurance – Local/state property taxes – Depreciation Gradual wear and tear on capital goods

16. Variable cost 128 cost that changes When the business rate of operation or output changes. Generally associated with – Labor Hired Laid off – Raw materials – Power – Transportation

17. Total cost 127 the sum of the fixed and variable costs required to operate a business.

18. E-commerce Electronic business or exchange – Conducted over the Internet Does not need to spend large amounts of overhead Most famous: – Amazon (US) Amazon – Ebay (US) Ebay – Ali Baba (PRC) Ali Baba Many retailers with physical store locations have on- line catalogues and ordering…..Macy’sMacy’s

19. Total revenue 130 The number of units sold multiplied by the average price per unit. Use chart on p. 128 – What is total revenue for 138 units? – $2,070

20. Marginal revenue The extra revenue associated with the production and sale of ONE additional unit of output. Determined by dividing the change in total revenue by the marginal product.

21. Marginal analysis A type of cost-benefit decision making Compares the extra benefits to the extra costs of an action. Done in small, incremental step process. Helpful…. – Break-even analysis – Profit maximization

22. Break-even point It’s the total output or total product the business needs to sell in order to cover its total costs.

23. Profit-maximizing quantity of output 131 Is reached when marginal cost and marginal revenue are equal

24. Hwk Assessments, Class Work, to Know

25. Assessments: Checking for Understanding CH 5, S2 1 As input changes – Production of outputs also changes First, each input will cause an increase Then, each input will cause an increase in increasingly smaller increments Finally, each input will cause a decrease.

26. CH 5, S2 3 The theory of production states that changing factors of production (inputs) will Change the output of goods and services

27. CH 5, S2 4 In stage I, marginal product increases In stage II, marginal product continues to increase, but at a slower rate. In stage III, marginal product becomes negative.

28. CH 5, S2 5 Workers will be in each other’s way and output will decrease.

29. Assessments: Checking for Understanding, CH 5, S3 1 The cost of inputs influences supply. The supply influences the number sold. The number sold multiplied by the average price per unit is the total revenue.

30. CH 5, S3 3 Fixed cost Variable cost Total cost Marginal cost

31. CH 5, S3 4 Total revenue The number of units sold multiplied by the average price per unit. Marginal revenue The extra revenue associated with the production and sale of ONE additional unit of output.

32. CH 5, S3 5 By comparing the marginal revenue and the marginal cost of adding extra units of variable input, the break-even and profit-maximizing points can be established.

33. Image, p. 124 Question As – increasing returns, – Diminishing returns – Negative returns Determined by marginal product

34. Images, p. 128 Question Total cost of the sum of fixed and variable costs. Marginal cost is the cost incurred by producing one additional unit of product.

35. Using the chart on p. 128 What is the change of marginal revenue when one extra worker is added to the 8 already working? an increase of $0/unit. Where is the break-even point? – Between 7-20 units of total product (the 2 nd worker) After that, what begins? – Profit profits are maximized when which worker is added? Explain why. Ninth, – Total profit starts to fall

36. Brief Response: Use the Image, p. 128 Given other factors, is it worth producing? explain 110 units? 145 units?

37. Investment Project Place where needed Instruction sheetsheet Making an Excel spreadsheet.spreadsheet