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Honors C.A.D. Mr. Grosso
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Productivity and Cost Measures of Cost graphic organizer Applying this stuff! Analyzing revenue
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We must make decisions that take into account productivity and cost Think of the example at the beginning of class – the gasoline in your car
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Measures of Cost Fixed Cost Variable Cost Total Cost Marginal Cost
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Fixed Cost: cost that a business incurs when output is ZERO Overhead = total fixed costs Depreciation = wear and tear on capital Variable Cost: cost that changes when output changes
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Total Cost: sum of fixed and variable costs Marginal Cost: added cost when a business makes ONE more product Fixed costs do not change! Thus, when you calculate this, only take into account the VARIABLE costs. Open your books to page 119 and look at the chart.
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Total Revenue: (number of units sold) X (average price per unit). You already know this under a different name think “total receipts test.” Marginal Revenue: extra revenue from making and selling ONE more product
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Economists use marginal analysis to weigh costs to benefits of a business decision. Break-even analysis– total output the business needs to cover TOTAL costs Refer to page 119 again – What is the “break-even point?’
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As long as marginal cost is less than marginal revenue, the business will keep hiring! Using page 119, when does the business make the most PROFIT? Profit-maximizing quantity of output: marginal cost = marginal revenue
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Review What’s the difference between fixed and variable costs? How do we calculate marginal cost? How do we find total revenue? Define the break-even point.
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