1. Costs of Production Unit 7 Decision, Decisions

2. Remember…… Scarcity forces people to make decisions about how they will use their resources!!! **Economic decision making requires people to consider all the costs and benefits of a decision What are trade-offs??? What is an opportunity cost???

3. Fixed Costs Costs or expenses that are the same no matter how many units of are good are produced Ex: mortgage payments, rent

4. Variable Costs Costs or expenses that change with the number of products produced Ex: wages, raw materials, electricity bills, water bills These costs increase when production increases and decrease when production decreases

5. Total Costs Fixed Costs + Variable Costs= Total Costs

6. Marginal Costs The extra or additional cost of producing one additional unit of an output Ex: 30 bike helmets= $1500, 31 bike helmets= $1550  marginal cost= $50

7. Marginal Revenue the extra revenue that results from selling one more unit of an output

8. Cost-Benefit Analysis an economic decision making technique that tells us to choose an action or make a decision when the benefits are greater than the costs.

9. Law of Diminishing Marginal Returns a company’s goal is to make as much profit as possible Profit: is money a company has made after costs have been deducted. Companies can increase profit by maximizing efficiency in production. Often, by adding more land, labor, or capital, companies can increase their profit. Law of Diminishing Marginal Returns: a level of production in which the marginal product of labor decreases as the number of workers increases.

10. Other Terms to Know -Capital Goods: raw materials that are used to make goods and services -Consumer Goods: goods bought in the market. These goods are consumed and are not used to produce more goods. **As the cost of capital goods rises, the price of producing consumer goods also rises.