Download Making Economic Decisions

Costs of Production
Remember……
Scarcity forces people to make decisions about how they will use
their resources!!!
**Economic decision making requires people to consider all the costs
and benefits of a decision
What are trade-offs??? What is an opportunity cost???
Fixed Costs
- Costs or expenses that are the same no matter how many units of
are good are produced
Ex: mortgage payments, rent
Variable Costs
- Costs or expenses that change with the number of products
produced
Ex: wages, raw materials, electricity bills, water bills
- These costs increase when production increases and decrease
when production decreases
Total Costs
- Fixed Costs + Variable Costs= Total Costs
Marginal Costs
- The extra or additional cost of producing one additional unit of an
output
Ex: 30 bike helmets= $1500, 31 bike helmets= $1550  marginal
cost= $50
Marginal Revenue
- the extra revenue that results from selling one more unit of an
output
Cost-Benefit Analysis
- an economic decision making technique that tells us to choose an
action or make a decision when the benefits are greater than the
costs
Law of Diminishing Marginal Returns
- a company’s goal is to make as much profit as possible
- Profit:is money a company has made after costs have been
deducted.
- Companies can increase profit by maximizing efficiency in
production.
- Often, by adding more land, labor, or capital, companies can
increase their profit.
-Law of Diminishing Marginal Returns: a level of production in
which the marginal product of labor decreases as the number of
workers increases.
Other Terms to Know
- Capital Goods: raw materials that are used to make goods and
services
- Consumer Goods: goods bought in the market. These goods are
consumed and are not used to produce more goods. **As the cost of
capital goods rises, the price of producing consumer goods also
rises.
Costs of Production
Remember……
______________ forces people to make decisions about how they will use their
resources!!!
**Economic decision making requires people to consider all the ________ and
____________ of a decision
What are trade-offs??? What is an opportunity cost???
_________ Costs
- Costs or expenses that are the __________ no matter how many units of are good are
___________
Ex: mortgage payments, rent
_________________ Costs
- Costs or expenses that _____________ with the ______________ of products
__________________
Ex: wages, raw materials, electricity bills, water bills
- These costs _____________ when production ______________ and _____________
when production ______________
Total Costs
- _____________ Costs + ______________ Costs= _______________ Costs
__________________ Costs
- The extra or additional _________ of ____________ one additional unit of an output
Ex: 30 bike helmets= $1500, 31 bike helmets= $1550  marginal cost= $50
________________ Revenue
- the extra _______________ that results from ______________ one more unit of an
output
__________-_______________ Analysis
- an economic decision making technique that tells us to choose an action or make a
decision when the ____________________________________
Law of Diminishing Marginal Returns
- a company’s goal is to make as much __________ as possible
- Profit: is money a company has made after ________ have been ___________.
- Companies can increase ______ by maximizing _____________ in production.
- Often, by __________ more land, labor, or capital, companies can increase their _____.
- Law of Diminishing Marginal Returns: a level of production in which the marginal
_______________of labor ______________ as the ___________________ of workers
___________________
At a point diminishing marginal returns, the chair company becomes ________
productive. Less and less ____________ is produced from each additional unit of
________. Therefore, the company becomes ________ productive and makes ______
profit at a point of diminishing marginal returns.
Other Terms to Know
- ________________________: raw materials that are used to make goods and services
- ________________________: goods bought in the market. These goods are consumed
and are not used to produce more goods.
**As the cost of capital goods _________, the price of producing consumer goods also
___________.