COSTS

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COSTS COSTS

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COSTS. 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!!. Opportunity Costs … What You LOST !. Fixed Costs - PowerPoint PPT Presentation

Transcript of COSTS

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COSTSCOSTS

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Remember….Remember….

**Scarcity forces people to **Scarcity forces people to make decisions about how they make decisions about how they will use their resources!!!will use their resources!!!

**Economic decision making **Economic decision making requires people to consider all requires people to consider all the costs and benefits of a the costs and benefits of a decision!!decision!!

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Opportunity Opportunity CostsCosts… What … What You You LOSTLOST!!

Fixed CostsFixed Costs Costs or expenses that are the Costs or expenses that are the

samesame no matter how many no matter how many

units of are good are produced units of are good are produced Ex: mortgage payments, rentEx: mortgage payments, rent

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Variable CostsVariable Costs Costs or expenses that Costs or expenses that

changechange with the number of with the number of products producedproducts produced

These costs These costs increaseincrease when when

production production increasesincreases and and

decrease decrease when production when production

decreasesdecreasesEx: wages, raw materials, electricity Ex: wages, raw materials, electricity bills, water billsbills, water bills

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Total CostsTotal Costs

- - FixedFixed Costs + Costs + VariableVariable Costs = Total CostsCosts = Total Costs

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Marginal CostsMarginal Costs The extra or additional cost of The extra or additional cost of

producingproducing oneone additional unit of additional unit of an outputan output

Ex: 30 bike helmets= $1500, 31 Ex: 30 bike helmets= $1500, 31 bike helmets= $1550 bike helmets= $1550 marginal marginal cost= $50cost= $50

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Marginal RevenueMarginal Revenue the extra revenue that results the extra revenue that results from selling one more unit of from selling one more unit of an outputan output

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Cost-Benefit AnalysisCost-Benefit Analysis - - an economic decision making an economic decision making

technique that tells us to choose technique that tells us to choose an action or make a decision an action or make a decision

when the when the benefitsbenefits are are

greater than the greater than the costscosts

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TechnologyTechnology

ROBOTICSROBOTICS:: machines perform physical machines perform physical taskstasks

INVENTIONSINVENTIONS new goods and services new goods and services

INNOVATIONSINNOVATIONS:: improving a good or improving a good or serviceservice

AUTOMATIONAUTOMATION: machines control : machines control productionproduction

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GROSS DOMESTIC PRODUCTGROSS DOMESTIC PRODUCT the total value, in dollars, of all of the the total value, in dollars, of all of the FINALFINAL goods goods

and services produced and services produced IN a country during a single a country during a single

year; measures the size and success of the year; measures the size and success of the

NATION’S ECONOMY.NATION’S ECONOMY.

the sale of the sale of USEDUSED goods are goods are NOTNOT included in GDP included in GDP

CAPITAL GOODSCAPITAL GOODS are not included in GDP are not included in GDP

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GDP is an important measure of GDP is an important measure of STANDARD OF LIVINGSTANDARD OF LIVING: the quality of : the quality of life based on the possession of necessities life based on the possession of necessities and luxuries that make life easier.and luxuries that make life easier.

GDP measures GDP measures QUANTITYQUANTITY NOTNOT

QUALITYQUALITY..

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Alberta wants to invite her friends over for Alberta wants to invite her friends over for dinner, but the only time they can come is dinner, but the only time they can come is Tuesday night when her favorite show, Tuesday night when her favorite show, Gilmore Girls, is on. She decides to invite her Gilmore Girls, is on. She decides to invite her friends because she would enjoy their friends because she would enjoy their company. Alberta invites seven friends over, company. Alberta invites seven friends over, but she needs to know how many are coming but she needs to know how many are coming so she’ll have enough food. Alberta is making so she’ll have enough food. Alberta is making spaghetti with meatballs and has to go to the spaghetti with meatballs and has to go to the grocery store no matter how many friends grocery store no matter how many friends decide to come.decide to come.

Alberta’s Opportunity Cost ____________________________________________Alberta’s Opportunity Cost ____________________________________________ Alberta’s Fixed Cost _________________________________________________Alberta’s Fixed Cost _________________________________________________ Alberta’s Variable Cost _______________________________________________Alberta’s Variable Cost _______________________________________________

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Jack owns a shoe repair shop. His rent Jack owns a shoe repair shop. His rent for the shop is $1500.00 a month. Jack for the shop is $1500.00 a month. Jack pays his employees $8.00 an hour and pays his employees $8.00 an hour and adds a raise of $.50 for every six months adds a raise of $.50 for every six months they have been working at Jack’s Shoes. they have been working at Jack’s Shoes. Since the weekend is the busiest Jack Since the weekend is the busiest Jack has three employees work on Friday and has three employees work on Friday and Saturday and only one employee on Saturday and only one employee on Monday through Thursday. Monday through Thursday.

Jack’s Fixed Cost Jack’s Fixed Cost __________________________________________________________________________________________________________________

Jack’s Variable Cost Jack’s Variable Cost ______________________________________________________________________________________________________________

Incentive for WorkersIncentive for Workers

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Andy’s pool hall is open from 5-10 pm. Andy’s pool hall is open from 5-10 pm. Andy is considering extending his store Andy is considering extending his store hours on Friday nights. He hears from hours on Friday nights. He hears from many of his customers that he will have many of his customers that he will have more business from college students if he more business from college students if he keeps his pool hall open until 2 AM. Andy keeps his pool hall open until 2 AM. Andy is trying to decide if the benefits outweigh is trying to decide if the benefits outweigh the costs of keeping the store open.the costs of keeping the store open.

Andy’s Fixed Cost _Andy’s Fixed Cost _ Andy’s Variable Cost Andy’s Variable Cost Andy’s Total Cost Andy’s Total Cost Andy’s Marginal Cost Andy’s Marginal Cost Andy’s Marginal RevenueAndy’s Marginal Revenue


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