1. Honors C.A.D. Mr. Grosso

2.  Productivity and Cost  Measures of Cost  graphic organizer  Applying this stuff!  Analyzing revenue

3.  We must make decisions that take into account productivity and cost  Think of the example at the beginning of class – the gasoline in your car

4. Measures of Cost Fixed Cost Variable Cost Total Cost Marginal Cost

5.  Fixed Cost: cost that a business incurs when output is ZERO  Overhead = total fixed costs  Depreciation = wear and tear on capital  Variable Cost: cost that changes when output changes

6.  Total Cost: sum of fixed and variable costs  Marginal Cost: added cost when a business makes ONE more product  Fixed costs do not change! Thus, when you calculate this, only take into account the VARIABLE costs. Open your books to page 119 and look at the chart.

7.  Total Revenue: (number of units sold) X (average price per unit).  You already know this under a different name  think “total receipts test.”  Marginal Revenue: extra revenue from making and selling ONE more product

8.  Economists use marginal analysis to weigh costs to benefits of a business decision.  Break-even analysis– total output the business needs to cover TOTAL costs  Refer to page 119 again – What is the “break-even point?’

9.  As long as marginal cost is less than marginal revenue, the business will keep hiring!  Using page 119, when does the business make the most PROFIT?  Profit-maximizing quantity of output:  marginal cost = marginal revenue

10. Review  What’s the difference between fixed and variable costs?  How do we calculate marginal cost?  How do we find total revenue?  Define the break-even point.