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In a Free Enterprise system, there is an economic incentive… and that is money !

In a Free Enterprise system, there is an economic incentive… and that is money !. Profit or Loss. For discussion…. What is profit? What is loss? How does a business get profit…or loss?. 4 important terms. Profit Loss Revenue Costs Total Average.

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In a Free Enterprise system, there is an economic incentive… and that is money !

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  1. In a Free Enterprise system, there is an economic incentive… and that is money! Profitor Loss

  2. For discussion… • What is profit? • What is loss? • How does a business get profit…or loss?

  3. 4 important terms • Profit • Loss • Revenue • Costs • Total • Average Refer to Chapter 2.2, pages 43-45 for additional information

  4. Revenue – the money a business takes in. total revenue = the price of the good x the number of the good sold • Iggy’s Ice Cream Shoppe sells 1,000 ice cream cones at $2.00 a piece. • Iggy’s total revenue is $2,000.00 1,000 x 2.00 = 2,000.00

  5. Cost • Total Cost = average cost of a good x the number of the good sold Example: It costs Susan 60 cents to make a pair of socks (counting materials, labor, etc.) She makes 100 pairs of socks. .60 x 100 = 60.00 Her total cost is $60.00

  6. Cost • Average Cost = Total Cost / Quantity Total Cost ($60.00) divided by quantity (100) = .60 cents (average cost) also: per-unit cost

  7. Profit • The amount of money left over after all the costs of production have been paid. Profit = Total Revenue > Total Cost (Consider: rent, wages, capital … monetary payments to resources… such as: mortgage, energy, labor, advertising, materials, insurance, taxes and fees…etc.

  8. Loss • The amount of money by which costs are greater than revenue. • Loss = Total Cost > Total Revenue

  9. Another way to think about it… • Total Revenue – Total Cost = profit or loss • Positive number = profit • Negative number = loss

  10. Calculate • Steve builds skateboards. He pays $20.00 for the deck, $40.00 for the wheels and $10.00 for the trucks. He pays Doris $5.00 to assemble a skateboard. He makes 100. What is his total cost? • Steve sells 100 skateboards for $110.00. What is his total revenue? • Profit or loss? How much? • Skateboards don’t sell. He discounts them to $70.00 and sells all 100. Profit or loss?

  11. Profits Attract ResourcesResources Move Away from Losses • Please review the info in Chapter 2.2 as needed. • Consider the documentary “Greed” • Answer Critical Thinking Question #5 See Exhibit 2.2 page 45

  12. p. 45 • Many people think that a profit only benefits the person who makes it. In other words, there is no social good to profit. Do you agree or disagree? Explain your answer.

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