Do Now According to some reports, supermarkets make a profit of three to six cents for every dollar...
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Transcript of Do Now According to some reports, supermarkets make a profit of three to six cents for every dollar...
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Do Now
• According to some reports, supermarkets make a profit of three to six cents for every dollar of revenue.
• Where does the rest of the money go????
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Costs of Production
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Labor and Output
• One basic question that any business owner has to answer is how many workers to hire.
• Owners have to consider how the number of workers they hire will affect their total production.
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• Marginal Product of Labor: the change in output from hiring one additional unit of labor (person)
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• Increasing Marginal Returns: a level of production in which the marginal product of labor increases as the number of workers increases
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• Diminishing Marginal Returns: a level of production at which the marginal product of labor decreases as the number of workers increases
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• Negative Marginal Returns: when workers get in each other’s way and disrupt production, so overall output decreases
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Production Costs
• Fixed Costs: a cost that does not change, no matter how much of a good is produced
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Production Costs• Variable Costs: a cost that rises or falls
depending on the quantity produced – Ex: salary for part-time employees, the cost of the
electricity that a store uses during business hours
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Production Costs
• Total Costs: the sum of fixed costs plus variable costs – the amount of money needed to operate a business
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Production Costs
• Marginal Costs: the cost of producing one more unit of a good
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Output• Marginal Revenue: the additional income from
selling one more unit of a good; sometimes equal to price
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Output• Average cost: the total cost divided by the
quantity produced
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Output• Operating Cost: the cost of operating a facility,
such as a factory, a store, or a school
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Sum it up
• Firms look for highest marginal return product of labor; they avoid negative marginal return
• Firms set output where marginal revenue equals marginal cost
• Firms continue to operate as long as total revenues exceed variable cost
• Firms make business decisions by weighing various types of cost against various types of revenue
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To Maximize Profit…Managing Labor Setting Output
•Marginal return: change in output from hiring one additional worker•Look for highest marginal return•Buy capital to increase marginal return
•Marginal revenue: additional income from selling one more unit•Marginal cost: additional cost from producing one more unit•Set output where marginal revenue equals marginal cost