1. COST OF PRODUCTION Microeconomics Made Easy by William Yacovissi Mansfield University © William Yacovissi All Rights Reserved

2. COST OF PRODUCTION l In order to make a product, or offer a service, a company must buy or supply the materials needed to make the product. l These materials are called inputs, resources, intermediate goods, or factors of production.

3. COST OF PRODUCTION l These things have value because they can be used to produce things people want. l They also have value because there are not enough of them available to produce everything everybody wants.

4. COST OF PRODUCTION l The process of transforming inputs into a product for sale is called production. l The money spent to do this is called Costs or Total Cost.

5. COST OF PRODUCTION l The cost per unit is called Average Cost or Average Total Cost and is calculated by Total Cost / Quantity or ATC = TC/Q. l For example, if it cost $400 to make 100 units of a product, then the average total cost, ATC = $400/100 = $4 per unit.

6. COST OF PRODUCTION l If it cost $1 per rental in royalties and $1.50 in cost for overhead in renting the video, what price maximizes this businesses profits.?

7. COST OF PRODUCTION