1. FrontPage: NNIGN Last Word: CH 5 Review and Quiz Thursday Life-Changing Tip Of The Day: Reverse Your Hoodie

2. Chapter 5, Section 2 WHAT ARE THE COSTS OF PRODUCTION?

3. Labor is a cost for producers  Question: Will more labor always = more output?  Short answer – NO  Marginal Cost is the extra cost of producing one more unit.  Marginal product is the change in total output brought about by adding one more worker.  A marginal product schedule shows the relationship between labor and marginal product.

4. Marginal Product Schedule Number of WorkersTotal ProductMarginal Product 000 133 274 3125 4197 52910 64213 75311 8618 9665 10671 1165-2 Increasing returns occur when hiring new workers causes marginal product to increase Diminishing returns occur when hiring new workers causes marginal product to decrease

5.  Fixed costs are expenses that the business owner must pay no matter how much or little they produce  Lighting in factory, rent for store, machinery, etc.  These don’t change in the short run  Variable costs depend on the level of production output.  Wages/salaries and raw materials are a good example of this  These do change as production level changes  Total cost is the sum of fixed and variable costs.

6. Fixed costs and variable costs  Michael, Pam and Ryan leave Dunder Mifflin paper company to strike out on their own…  Selling paper themselves, delivering it themselves (at 5am), they have managed to undercut the prices of Dunder Mifflin, Staples, all the other competition.  They visit a financial advisor to find out whether they can hire a delivery guy to take care of some of those 5am deliveries…  http://economicsoftheoffice.com/all/?jel=D24 http://economicsoftheoffice.com/all/?jel=D24

7. Production Cost Schedule Number of Workers Total Product Fixed Costs ($) Variable Cost ($) Total Cost ($) Marginal Cost ($) 00400 --- 1340307010 2740621028 31240971377 419401321725 529401722124 642402112513 753402773176 8614037341312 9664047351320 10674050354330 116540539579----

8. Where is highest profit?

9. Equations for the chart  Total product = total revenue/marginal rev  Total cost (fixed and variable costs) = profit – total revenue  Marginal cost = total cost/ total product  Marginal revenue = cost of one unit (price of item)  Total revenue = product x marginal cost