1. Cost and Factors
of Production

2. Review
Remember……
Scarcity forces people to make decisions about how they will use their resources!!!

3. 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???

4. 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

5. 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

6. Total Costs
Fixed Costs + Variable Costs= Total Costs

7. 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

8. Factors of Production Remember……. Goods: tangible products
Services: work that is performed for someone else

9. 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

10. How do you remember the Factors of Production??
C- Capital
E- Entrepreneurship
L- Land
L- Labor

11. Capital Capital are tools and equipment to make the “thing” Example:
Computer, Buildings

12. Entrepreneurship
Entrepreneurship is the one willing to RISK money to bring together the factors for the “thing”
Example:
CEOs
Stock-holders

13. Land
Land is the resources provided by nature that help create the “thing”
Example
Milk
Water
Sugar

14. Labor Labor is all human efforts that help produce the “thing”
Example:
Factory workers
Scientists
Sales people

15. 2 Types of Labor Blue Collar Jobs
Workers that use their physical skills
Examples:
Plumer, Postman, Mechanic, Therapist
Earns an hourly wage (Variable Cost)

16. 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)

17. Practice Scenario
Alberta wants to invite her friends over for dinner, but the only time they can come is Tuesday night when her favorite show, Gilmore Girls, is on. She decides to invite her friends because she would enjoy their company. Alberta invites seven friends over, but she needs to know how many are coming so she’ll have enough food. Alberta is making spaghetti with meatballs and has to go to the grocery store no matter how many friends decide to come.
Alberta’s Opportunity Cost ____________________________________________
Alberta’s Fixed Cost _________________________________________________
Alberta’s Variable Cost _______________________________________________

18. Practice Scenario
2. Jack owns a shoe repair shop. His rent for the shop is $ a month. Jack pays his employees $8.00 an hour and adds a raise of $.50 for every six months they have been working at Jack’s Shoes. Since the weekend is the busiest Jack has three employees work on Friday and Saturday and only one employee on Monday through Thursday.
Jack’s Fixed Cost _________________________________________________
Jack’s Variable Cost _______________________________________________
Incentive for Workers ______________________________________________