1. Supply Theory of Production

2. - Theory of Production deals with the relationship between factors of production and the output of goods and services -short run v. long run – if a business hires additional labor to boost production, this is short run. If they build a new factory, this is long run -Law of Variable Proportions – the idea that in the short run, output will change as input is varied while others are held constant; Ex: sauce on pasta or butter on bread; -can change multiple variables, but it hard to track the impact of an individual variable Production Function – concept that describes the relationship between changes in output to different amounts of a single input while other inputs are constant; Ex: adding workers in a factory but keeping everything else the same

3. - Total product = total output; as more workers are added, total product rises; more workers = more specialization - Eventually, after a certain number of workers are added, production slows. Total product still increases but at a slower rate; Finally, too many workers can result in the decrease of total product; Why? - Marginal product – the change in product due to the addition of one or more variable input - Stages of production – shows increasing returns (Stage 1), diminishing returns (Stage 2), and negative returns (Stage 3)

4. Production, Costs, Revenues, Profit Production ScheduleCostsRevenuesProfit Regions of Productio n Number of workers Total Product Marginal Product Total Fixed Costs Total Variable Costs Total Costs Marginal Costs Total Revenue Marginal Revenue Total Profit Stage 1000$50$0$50-------$0------$50 1775090140$12.86105$15-35 22013501802306.923001570 33818502703205.0057015250 46224503604103.7593015520 59028504505003.211,35015850 Stage 2611020505405904.501,650151,060 712919506306804.741,935151,210 813895072077010.002,070151,300 914465081086015.002,160151,300 1014845090095022.502,220151,270 Stage 311145-3509901040-------2,175151,135 12135-105010801130-------2,02515895

5. Measure of Cost -Fixed cost – The cost that a business incurs even if output is zero, a little, or a large amount; includes interest charges, taxes, depreciation, executive pay; Same as overhead -Variable Cost – cost that changes when the business rate of operation or output changes; Example: labor, raw materials, shipping charges; these can change as supply changes; If you don’t want to produce a large supply anymore, labor costs will change because people may be laid off. -Total cost – Fixed cost and variable costs added together; -Marginal cost- extra cost when a business produces an additional unit of a product; Example: calculate change in total costs from when you had 0 workers to 1 worker ($140- $50 = $90). Divide that by the number by the marginal product. You will get marginal cost. -Marginal Revenue – the extra revenue associated with the production and sale of one additional unit of output -Total Revenue – the number of units sold multiplied by average price per unit Profit – Total revenue minus total costs = profit

6. Cost, Revenue, and Profit Maximization  Self Service Gas Station – What hours of operation would be beneficial?  Internet Store – How could this be beneficial for a supplier over a department store?

7. Who is making more money Honda or Toyota? How would you know? http://finance.yahoo.com/q/is?s=HMC&annu al http://finance.yahoo.com/q/is?s=TM&annual What type of business would you own? Why? http://finance.yahoo.com/q/is?s=HMC&annu al http://finance.yahoo.com/q/is?s=TM&annual