1 / 15

Production and Cost

Production and Cost. The amount of output (products) produced by a given amount of inputs (resources) in a specific amount of time Increased by division of labor and specialization. Productivity. Relationship between the factors of production and the output of goods and services

niblett
Download Presentation

Production and Cost

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Production and Cost

  2. The amount of output (products) produced by a given amount of inputs (resources) in a specific amount of time • Increased by division of labor and specialization Productivity

  3. Relationship between the factors of production and the output of goods and services • Four Factors of Production • Land • Labor • Capital • Entrepreneurs Theory of Production

  4. Variable inputs (V) – things that can be changed easily • Number of workers • Amount of ingredients • Fixed inputs (F) – things that cannot be easily changed • Building size • Additional capital

  5. Total output increases as variable inputs increase • The more workers you have (to a certain point) the more you can produce • Marginal product (MP) is the extra output caused by the addition of one more unit of variable input • Firms do not hire additional workers if marginal product decreases

  6. Businesses must analyze costs before making decisions Costs

  7. Fixed Costs (FC) – costs incurred when business is idle and output is zero • Rent • Insurance

  8. Variable Costs (VC) – costs incurred when operations are up and output changes • Labor • Inputs

  9. Total Costs = Fixed Cost plus Variable Cost (TC=FC+VC) • All the money you spend to make a product

  10. Marginal Cost (MC) – the extra cost incurred when a business produces one additional unit of a product

  11. Money brought in for selling goods or services Revenue

  12. Total revenue (TR) = number of units sold multiplied by the average price per unit • Sell 50 t-shirts for $10 each = $500 in TR

  13. Fixed Cost + Variable Cost = Total Cost FC + VC = TC • Price of product x Quantity sold = Total Revenue P x Q = TR • Total Revenue – Total Cost = Profit/Loss TR – TC = Profit Calculating Profit

  14. Marginal revenue (MR) – extra revenue associated with the production and sale of one additional unit

  15. Average Total Cost (ATC) is Total Cost divided by output • Average Variable Cost (AVC) is Variable Cost divided by output Averages

More Related