Cost and Factors of Production
Review Remember…… Scarcity forces people to make decisions about how they will use their resources!!!
Review Economic decision making requires people to consider all the costs and benefits of a decision What are trade-offs??? What is an opportunity cost???
Cost of Production (Doing Business) Fixed Costs Costs or expenses that are the same no matter how many units of are good are produced Ex: mortgage payments, rent
Variable Costs Costs or expenses that change with the number of products produced Ex: wages, raw materials, electricity bills, water bills These costs increase when production increases and decrease when production decreases
Total Costs Fixed Costs + Variable Costs= Total Costs
Marginal Costs The extra or additional cost of producing one additional unit of an output Ex: 30 bike helmets= $1500, 31 bike helmets= $1550 marginal cost= $50
Factors of Production Remember……. Goods: tangible products Services: work that is performed for someone else
Factors of Production There are four basic factors of production These four factors are the things needed to make other things, but are not necessarily part of the product produced
How do you remember the Factors of Production?? C - Capital E- Entrepreneurship L- Land L- Labor
Capital Capital are tools and equipment to make the “thing” Example: Computer, Buildings
Entrepreneurship Entrepreneurship is the one willing to RISK money to bring together the factors for the “thing” Example: CEOs Stock-holders
Land Land is the resources provided by nature that help create the “thing” Example Milk Water Sugar
Labor Labor is all human efforts that help produce the “thing” Example: Factory workers Scientists Sales people
2 Types of Labor Blue Collar Jobs –Workers that use their physical skills –Examples: Plumber, Postman, Mechanic, Therapist Earns an hourly wage (Variable Cost)
White Collar Jobs –Workers that use their brains for the most part of their job –Examples: Lawyer, Teacher, Scientist, CEO Earns a yearly salary (Fixed Cost)