1. Free Enterprise In a Free Enterprise system, there is an economic incentive… and that is money! Profit or Loss

2. For discussion… What is profit? What is loss? How does a business get profit…or loss?

3. 4 important terms 1.Profit 2.Loss 3.Revenue 4.Costs –Total –Average Refer to Chapter 2.2, pages 43-45 for additional information

4. Revenue – the money a business takes in. total revenue = the price of the good x the number of the good sold Iggy’s Ice Cream Shoppe sells 1,000 ice cream cones at $2.00 a piece. Iggy’s total revenue is $2,000.00 1,000 x 2.00 = 2,000.00

5. Cost Total Cost = average cost of a good x the number of the good sold Example: It costs Susan 60 cents to make a pair of socks (counting materials, labor, etc.) She makes 100 pairs of socks..60 x 100 = 60.00 Her total cost is $60.00

6. Cost Average Cost = Total Cost / Quantity Total Cost ($60.00) divided by quantity (100) =.60 cents (average cost) also: per-unit cost

7. Profit The amount of money left over after all the costs of production have been paid. Profit = Total Revenue > Total Cost (Consider: rent, wages, capital … monetary payments to resources… such as: mortgage, energy, labor, advertising, materials, insurance, taxes and fees…etc.

8. Loss The amount of money by which costs are greater than revenue. Loss = Total Cost > Total Revenue

9. Another way to think about it… Total Revenue – Total Cost = profit or loss Positive number = profit Negative number = loss

10. Calculate Steve builds skateboards. He pays $20.00 for the deck, $40.00 for the wheels and $10.00 for the trucks. He pays Doris $5.00 to assemble a skateboard. He makes 100. What is his total cost? Steve sells 100 skateboards for $110.00. What is his total revenue? Profit or loss? How much? Skateboards don’t sell. He discounts them to $70.00 and sells all 100. Profit or loss?

11. Profits Attract Resources Resources Move Away from Losses Please review the info in Chapter 2.2 as needed. Consider the documentary “Greed” –Answer Critical Thinking Question #5 See Exhibit 2.2 page 45

12. p. 45 Many people think that a profit only benefits the person who makes it. In other words, there is no social good to profit. Do you agree or disagree? Explain your answer.