1. Cost of Production

2. Labor and Output Marginal product of labor Change in output from hiring one additional unit of labor Increasing marginal returns Level of production where marginal product of labor increases as the number of workers increase Diminishing marginal returns Level of production where marginal product of labor decreases as the number of workers increase Negative marginal returns Amount of workers causes them to get into each other’s way and disrupt the production process, decreasing output

3. EmployeesBean Bags ProducedMarginal Product of Labor 14 210+6 317+7 423+6* 528+5* 632+4* 731-1** 8 and moreContinues to decrease *Indicates diminishing marginal returns **Indicates negative marginal returns

4. Production Costs Fixed Costs – costs that stay the same. Example – Rent Variable Costs – vary or changes Total Costs = Fixed Costs + Variable Costs Marginal Cost – the additional cost of producing 1 more unit

5. Setting Output Marginal Revenue and Marginal Cost Marginal Cost – the cost of producing 1 more unit Marginal Revenue – the additional income of producing one more unit When marginal revenue equals marginal cost, profits are maximized Responding to Price Changes Increase in prices will result in increase in production

6. The Shutdown Decision Operating Costs If total revenue is greater than fixed costs you should keep the plant open