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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
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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 • Four Factors of Production • Land • Labor • Capital • Entrepreneurs Theory of Production
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
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
Fixed Costs (FC) – costs incurred when business is idle and output is zero • Rent • Insurance
Variable Costs (VC) – costs incurred when operations are up and output changes • Labor • Inputs
Total Costs = Fixed Cost plus Variable Cost (TC=FC+VC) • All the money you spend to make a product
Marginal Cost (MC) – the extra cost incurred when a business produces one additional unit of a product
Total revenue (TR) = number of units sold multiplied by the average price per unit • Sell 50 t-shirts for $10 each = $500 in TR
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
Marginal revenue (MR) – extra revenue associated with the production and sale of one additional unit
Average Total Cost (ATC) is Total Cost divided by output • Average Variable Cost (AVC) is Variable Cost divided by output Averages