1. Trade-offs, cost, and revenue
Economic decisions
Trade-offs, cost, and revenue

2. Photo credit: epicgames.com
Trade-offs
A trade-off is the alternative you face when you choose to do or purchase one thing instead of another.
Ex: Using your time to do your homework or play Fortnite
Opportunity Cost: what you’re giving up because of a trade-off.
Ex: If you decide to play Fortnite, you’re giving up your GOOD GRADES.
You’re essentially “paying” for V-Bucks with your grade points.

3. Cost – what you give in order to get something
Fixed Cost: This is the same amount no matter how many of an item you produce.
Can be CAPITAL: goods used to make other goods
Ex: No matter how many cakes you want to frost, you can use the same spatula.
Variable Cost: Changes based on the amount of items you produce.
If you want to frost more cakes, you need to buy more frosting.
Can include wages for employees or cost of supplies
Photo credit: some French Pinterest account

4. Cost (continued)
Total Cost: Fixed cost plus the variable cost for your desired amount of items. FC + VC = TC
Marginal Cost: How much it costs to produce one extra item.
Ex: frosting one more cake costs $2 (the price of a jar of frosting)
VC = MC x Items
Therefore…… FC + (MC x Items) = TC

5. practice Let’s say our frosting spatula cost $6.
It costs $2 to frost each cake because we need one jar of frosting per cake.
How much would it cost to frost 9 cakes?

6. Revenue – what you earn when you sell something
Total Revenue: How much you earn for selling a certain number of items.
Marginal Revenue: The money you get from selling one more item. (the price)
So…. MR x Items = TR
Cost-Benefit Analysis: Using the costs and benefits of producing a certain number of items to make an economic decision.

7. Practice
Betty Baker will pay you $3 for every cake you frost. How many cakes do you need to frost in order to begin earning a profit? Profit = How much bigger the total revenue is than total cost Break-Even Point = When total revenue and total cost are equal FC + (MC x Items) < MR x Items