Transcript 5.2 & 5.3 Supply PowerPoints edited - kduncankis

The Theory of Production
5.2: p. 122
How much salt is “just right”?
Law of Variable Proportions
In the short run, output will change as one
input is varied while the others are held
constant
• Deals with the relationship between input
of productive resources and the output of
final products
• How is the output of the final product
affected as more units of one variable
input or resource are added to a fixed
amount of other resources?
• In a flower nursery, name one thing that
can be changed while all other things
remained constant.
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Soil type
# of workers
type of seed
fertilizer amount
Fertilizer type
Sunlight
Water
The Production Function
• A concept that
describes the
relationship between
changes in output to
different amounts of
single input while other
inputs are held constant
• Production Schedule,
Production Function
– See figure 5.5 p. 124
Cost, Revenue, and Profit
Maximization
5.3: p. 127
In pairs, Determine if the following
are fixed or variable costs
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Salaries paid to executives
Salaries to Wage earning workers
Rent payment
Electric bill
Property taxes
Freight Charges
Depreciation of machinery
Cost of factory building
Cost of Raw Materials
Cost of Large machinery
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MOST OF THESE CAN BE ARGUED!!!
Fixed
Variable
Fixed
Variable
Fixed
Variable
Fixed
Fixed
Variable?
Fixed
Example: Automatic Car Wash
• Compare the fixed costs to the variable costs.
Make a list of each.
• Would you keep the facility open 24/7 or, to save
money, only during certain hours? Why?
• How would this change for a hand-wash
business?
E-Commerce
• Why is E-Commerce attractive to
businesses who want to keep their costs
down?
LOW
OVERHEAD
TV Demographics
• Children & Teen TV Usage
Let’s look @ the homework
• http://kis-econfall08.wikispaces.com/UNIT+2++DEMAND%2C+SUPPLY%2C+%26+PRI
CES
Revenue
• What is the difference between total
revenue and marginal revenue?
• TR = Units sold X Price per unit
• MR = Change in TR / Marginal Product
Review
• Let’s study the chart on p. 128.
Explain:
• Total Product
• Marginal Product
• Total Fixed Costs
• Total Variable Costs
• Total Costs
• Marginal Costs
– Why does Marginal Costs start high, drop, and then rise again?
• Total Revenue
– How do we compute this?
• Marginal Revenue
– Will MR always be constant ($15)
• Total Profit
• What is the price of each item being sold?
– What are 2 ways we can compute this?
Marginal Analysis
• Analyze the chart again.
• What is the break-even point?
• What is the profit-maximizing quantity of
output? Why?