1. Unit 4, Lesson 9 How the Interactions of Businesses and Consumers Determine Prices AOF Business Economics Copyright © 2008–2011 National Academy Foundation. All rights reserved.

2. Companies want to be profitable Companies must balance what it costs to produce their product with what the market will pay for it. Companies can determine this balance using the data in production, cost, and revenue schedules. Information from these schedules can help managers adjust operations to maximize profits. When considering production, how do businesses maximize profits?

3. The production schedule presents information on worker productivity Production Schedule Marginal Returns Number of Workers Total Product Marginal Product Increasing 000 110 22313 34118 46524 59328 Decreasing 611320 713219 81419 91476 101514 Negative 11148-3 12138-10 How many workers the company has How much the company produces How much more is produced with each additional worker When adding additional workers no longer increases productivity

4. The cost schedule presents information on the costs associated with production Costs No. of Workers Goods Produced Fixed Costs Variable Costs Total Cost Marginal Cost 001000 -- 110100 20010 2231002003008 3411003004006 4651004005004 5931005006004 61131006007005 71321007008005 814110080090011 9147100900100017 101511001000110025 1114810011001200** 1213810012001300** **Marginal cost is the cost for each unit of extra output, and here there is no extra output.

5. The revenue schedule presents information on revenue and profit RevenuesProfit Number of Workers Total Revenue Increase in Revenue Marginal Revenue Total Profit Margin (%) 0000-100No profit 1170 17-30-18% 2391221179123% 36973061729743% 411054081760555% 515814761798162% 6192134017122164% 7222430317144465% 8239717317149762% 9249910217149960% 1025676817146757% 112516-51**131652% 122346-170**104645% **Marginal revenue is the gain in revenue from each extra unit of output. Here there is no extra output.

6. Tables like this show the “break-even point” and the scale of production that maximizes profit Production ScheduleCostsRevenuesProfit Workers Total Product Marginal Product Total Fixed Cost Total Variable Costs Total Cost Marginal Cost Total Revenue Marginal Revenue Total Profit 0001000 0 -100 110 100 2001017017-30 2231310020030083911791 34118100300400669717297 465241004005004110517605 593281005006004158117981 61132010060070051921171221 71321910070080052244171444 81419100800900112397171497 914761009001000172499171499 10151410010001100252567171467 11148-3100110012002516171316 12138-10100120013002346171046 1 2