1. A.P. Microeconomics Chapter 6: The Behavior of Profit Maximizing Firms Daily:We are opening a pizzeria; you have 3 minutes to brainstorm our initial costs (must have at least 6). And then add a list of 6 bills we will still pay monthly.

2. Behavior of Profit-Maximizing Firms  Primary Objective: 3 Basic Questions: 1. How much to Supply 2. How to Produce that Output 3. How much of each Input to Demand {Assumption: for the next few chapters the producers operate in perfect competition: homogeneous products, no individual firm has price control, firms are small compared to industry.} Make a Profit

3. Profit and Economic Costs Profit = Total Revenue – Total Costs Positive Negative Zero Making Profit Losing Money Breaking Even

4. Profit and Economic Costs Profit = Total Revenue – Total Costs Amount received from the sale of the product Who remembers the formula for total revenue? (quantity × price) (q × p)

5. Profit and Economic Costs Profit = Total Revenue – Total Costs (1) Out-of-Pocket Costs: Costs owners pay initially and monthly, some are fixed and some vary per month (2) Opportunity Cost of Each Factor:  The costs of decisions made, both those that are included in the initial but may be a future factor (buying a location with an oven in it already ~ using my personal car for deliveries).  The cost of the alternative of that decision (salary, interest earned)

6. Costs cont. (3) Normal Rate of Return:  Investments in capital goods (tools, equip, & stocks) that stay tied up while business is in operation.  Owners expect a rate of return that is sufficient to keep owners and investors satisfied.

7. Profit and Economic Costs  If a business earns exactly a normal rate of return then profit is zero.  If a business earns a positive rate of return then profit is positive (and conversely).

8. Production Time Frame:  Short Run  Fixed factors of production; locks firm into the current scale of operations.  New firms cannot enter and existing firms cannot exit: they are locked into some costs even if no production  Long Run  No fixed factors of production  Firms can plan for any level of output (in response to consumers)  New firms can start up and existing can go out of business.

9. Optimal Method of Production = the method that minimizes costs!! Price of Output Production Techniques Input Prices Determines Total Revenue Determines total cost and optimal method of production Total Revenue – Total Costs (with optimal method) = Total Profits

10. Top Ten!! 10. Education 9. Furniture/appliances 8. Clothing 7. Entertainment 6. Healthcare 5. Utilities – public services 4. Insurances & pensions 3. Food 2. Transportation 1. Housing Biggest areas of consumer expenditure in USA