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COST OF PRODUCTION. Microeconomics Made Easy by William Yacovissi Mansfield University William Yacovissi All Rights Reserved. COST OF PRODUCTION. In order to make a product, or offer a service, a company must buy or supply the materials needed to make the product.
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COST OF PRODUCTION Microeconomics Made Easy by William Yacovissi Mansfield University William Yacovissi All Rights Reserved
COST OFPRODUCTION • In order to make a product, or offer a service, a company must buy or supply the materials needed to make the product. • These materials are called inputs, resources, intermediate goods, or factors of production.
COST OF PRODUCTION • These things have value because they can be used to produce things people want. • They also have value because there are not enough of them available to produce everything everybody wants.
COST OF PRODUCTION • The process of transforming inputs into a product for sale is called production. • The money spent to do this is called Costs or Total Cost.
COST OF PRODUCTION • The cost per unit is called Average Cost or Average Total Cost and is calculated by Total Cost / Quantity or ATC = TC/Q. • For example, if it cost $400 to make 100 units of a product, then the average total cost, ATC = $400/100 = $4 per unit.
COST OF PRODUCTION • If it cost $1 per rental in royalties and $1.50 in cost for overhead in renting the video, what price maximizes this businesses profits.?
