Transcript increasing marginal returns

Warm - Up
• How do the owners of fast food
restaurants know how much food to
produce each day?
Ch 5.1
Understanding Supply
Supply
• Supply is the amount of goods available
of Supply is the higher the price,
• The Law
___________
the larger the quantity produced. Thus the
lower the price, the quantity supplied falls.
profit drives the supplier’s
• The search for _____
decision.
Supply Schedule
• Shows the relationship between
price and quantity supplied for a specific
______________
good.
• Like a demand schedule, a supply
schedule lists supply for a very specific set
of conditions. Again, only looking at
______________.
Other factors such as
price and output
the cost of tomato sauce, labor and rent
constant
are assumed to remain _______.
• Market Supply Schedule shows the total
supply in a market.
• A Supply curve is the same as demand
EXCEPT the horizontal axis now
________
measures the quantity of the good
_______ not the quantity demanded.
supplied
Elasticity & Supply
• Elasticity of supply measures the way
suppliers respond to a change in price
• It is the SAME
______________
AS DEMAND
• What determines whether the supply of a
good will be elastic or inelastic? The key
factor is time.
TIME
• Time is the key factor in determining
whether the supply of a good will be
elastic or inelastic
• In the long
_______,
run firms are more
_______,
flexible so supply is more elastic
• In the ________,
short run companies are
___________
less elastic
– Ex. Orange grove … takes years to
grow(inelastic)
– Haircut – need more, hire workers, if
less workers go elsewhere(elastic)
Elastic or Inelastic?
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Price of apples increase
Price of an oil change
Price of dry cleaning services
Price of football tickets
Hotel rooms
Taxi rides
Photographs
Taxi rides
Ch 5.2
Cost of Production
Labor and Output
• Marginal Product of Labor
– Change in output from hiring one more worker
(look at Figure 5.6 p. 109)
– Specialization increases output per worker, so
the second and third worker add more to
output than the first…=
• INCREASING MARGINAL RETURNS BUT get
• DIMINISHING MARGINAL RETURN with the 4th7th worker hired and
• NEGATIVE MARGINAL RETURN with the 8th
worker
• _________
Increasing marginal returns –
increases output per worker
specialization _____________
Diminishing marginal returns – adding
• ___________
more workers increases total output, but at
a _________
decreasing rate.
• _________
Negative Marginal Returns – is an
actual decrease in output.
Production Costs (p. 111)
• Fixed Cost
change no matter how much produced.
– Does not
__________
(ex. Rent, taxes on a factory)
• Variable Cost
– Rise or fall depending on quantity
________________.
produced
( ex. Electricity, labor)
• Total Cost
– Fixed plus variable = total
• Marginal Cost
– The additional cost of producing one
____________.
more unit
Setting Output
• The best level of output is to find the
output level where marginal revenue is
equal to marginal cost.
• IPHONE
To Shutdown or to not shutdown
• If shuts down – still have to pay ________
fixed costs
• Sometimes keeping a money-losing
factory open is the better choice
• Amazon.com (next class) v. Circuit City
BUSINESS…
• Create a business
– Give it a name
– Tell me what you produce & whether it is an
inferior good, a complement, a necessity or a
luxury good
– Do you EXPORT – Where?
• create a supply schedule for that product
• make a supply curve (p. 105)
• Then take that business & decide how
many employees to hire...
• what are your fixed and variable costs?
• CREATE AN ADVERTISEMENT OR
CARD FOR YOUR BUSINESS…
• And for homework…
Your Supply Market
•We are going to hold a Market auction in class. Next class:
•Bring in an item to contribute
• this will be a 100% quiz grade & will allow you to participate in
the game.
•I am not telling you how much to spend or to not spend – be
creative – maybe your job or parent can donate something from
work –
•You will get as many dollars as your percentage in class to use
for exchange.
•If you win the bidding war – you win the item
If the class does not bring anything – then we will have a quiz
instead
WARM-UP
• List 3 goods: one that is usually available
and “on sale,” another that is popular but
difficult to find, and a third that falls inbetween ...what prices do stores charge
for these products?
Ch 5.3
Changes in Supply
INPUT
• Any change in the _____
cost of an input used to
produce a good – such as raw materials,
machinery, or labor – will affect supply.
• A rise of ______
input causes a fall in _______
supply at all
price levels.
increase in supply
• A fall in input will cause an ________
at all price levels.
Technology
Lowers costs and increases supply at all
• _______
price levels
– This shifts the supply curve to the right
____
Government & Supply
• Subsidies
– Government payment that supports a
business or market Ex. Farms
_________________.
• Taxes
– Excise tax is a tax on the
_________________
production or sale of a good Who does
this hurt? lower income
– Ex: Alcohol, cigarettes
• Regulation
– Government intervention in a market that
affects the price, quantity, or quality of a
good.
raise or lower supply indirectly
– This can _____________
and often increases price.
Other influences
• Future price expectations of prices.
– If the seller expects the price of a good to rise in the
future the seller will store
______,
____ the goods now in order to
sell more in the future. On the other hand, if the
________
price of the good is expected to drop
____ in the near
future, sellers will earn more money by placing goods
immediately before the price falls.
on the market ___________
reduce supply now
Expectations of higher prices will ____________
and increase supply later, and expectations of lower
prices will have the opposite effect.
• Number of suppliers
producing a good
– If more suppliers enter a
market to produce a
certain good, the market
supply of the good will
____,
rise and the supply
curve will shift to the
_____.
right On the other
hand, if suppliers stop
producing the good and
leave the market the
swill decline.
Toe mae toe…Ta ma toe,
Poe tae toe…Poe ta toe
• Present a scenario in which the supply of
tomatoes or potatoes is affected by each
Role's input costs (ex. Higher wage, lower
fertilizer costs)
• Create and present the scenario & how it
changes the supply of tomatoes
• ROLES: farm worker, grocery clerk, fertilizer
salesperson, production technology sales rep,
tomato/potato grower
• Put on butcher paper & create a Supply Curve