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.

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?

The production schedule presents information on worker productivity Production Schedule Marginal Returns Number of Workers Total Product Marginal Product Increasing Decreasing Negative 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

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 ** ** **Marginal cost is the cost for each unit of extra output, and here there is no extra output.

The revenue schedule presents information on revenue and profit RevenuesProfit Number of Workers Total Revenue Increase in Revenue Marginal Revenue Total Profit Margin (%) No profit % % % % % % % % % % **131652% **104645% **Marginal revenue is the gain in revenue from each extra unit of output. Here there is no extra output.

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