Presentation on theme: "Change in Supply Schedule"— Presentation transcript:
1Change in Supply Schedule Economist use the word to supply to refer to the relationship between price & quantity suppliedThe # of goods offered at a specific price is called the quantity supplied at that priceThe rise or fall in the price of a good will cause the quantity supplied to change but not the supply scheduleThe seller will just move from one row to another but when a factor other than price affects output a new supply schedule
2SUPPLYAccording to the law of supply, suppliers will offer more of a good at a higher price.PriceAs price increases…SupplyQuantity supplied increasesPriceAs price falls…SupplyQuantity supplied falls
3Price per slice of pizza Slices supplied per day Supply Schedule$.501,000Price per slice of pizzaSlices supplied per dayMarket Supply Schedule$1.001,500$1.502,000$2.002,500$2.503,000
4Output (slices per day) Supply CurveMarket Supply CurvePrice (in dollars)Output (slices per day)3.002.502.001.501.00.50500100015002000250030003500Supply
5Output (slices per day) Changes In SupplyMarket Supply CurvePrice (in dollars)Output (slices per day)3.002.502.001.501.00.50500100015002000250030003500Supply 3SupplyS3 =DecreaseSupply 2S2 = Increase
13Costs Of Production How does a supplier decide how much to produce? How does a firm decide how many workers to hire?
14Marginal In economic terms Marginal simply means ‘additional’ Marginal Product Of Labor = output change from hiring one additional worker
15A Firm’s Labor Decisions Marginal Product of LaborLabor (number of workers)Output (beanbags per hour)Marginal product of laborBusiness owners have to consider how the number of workers they hire will affect their total production.The marginal product of labor is the change in output from hiring one additional unit of labor, or worker.—1421063177423652831373218–1
16Marginal Marginal Cost = the additional cost of producing one additional unitMarginal Revenue=the additional revenue from producing one additional unit
17Labor (number of workers) Marginal Product of labor Marginal ReturnsIncreasing, Diminishing, and Negative Marginal ReturnsLabor (number of workers)Marginal Product of labor(beanbags per hour)87654321–1–2–3123Increasing marginal returnsIncreasing marginal returns occur when marginal production levels increase with new investment.Diminishing marginal returns occur when marginal production levels decrease with new investment.4567Diminishing marginal returnsNegative marginal returns occur when the marginal product of labor becomes negative.89Negative marginal returns
18Production CostsA fixed cost is a cost that does not change, regardless of how much of a good is produced. Examples: rent and salariesVariable costs are costs that rise or fall depending on how much is produced. Examples: raw materials, some labor costs.The total cost equals fixed costs plus variable costs.TC = FC + VCThe marginal cost is the cost of producing one more unit of a good.
19Setting OutputMarginal revenue (+ one more unit) is usually equal to price.To determine the best level of output, firms determine the output level at which marginal revenue is equal to marginal cost.Production CostsTotal revenueProfit (total revenue – total cost)Marginal revenue (market price)Marginal costTotal cost (fixed cost + variable cost)Variable costFixed costBeanbags (per hour)$ –36–2021401234$024487296$24—$85$36445156812152036577284935678120144168192249121563992736489892792162402642882419303736910111282106136173118142172209