2. She produces these in her own home without any help, unless she has a large number of orders on a particular day. Marcia Deal bakes and decorates large, elaborate, multi- layered, special occasion cakes. What does Marcia need to operate her business?

3. #TCTFC TVCATC MC 0 1 2 3 4 5 6 7 8 With the following information, complete the table: The total cost of producing 5 cakes is $135 Marcia’s total fixed cost for 1 cake is $25 The total cost of 2 cakes is $60 The total variable cost for 1 cake is $25 The total variable cost of producing 7 cakes is $220 The marginal cost of the 6 th cake is $45 The marginal cost for the 8 th cake is $91 The ATC per cake when 3 cakes or when 4 cakes are made is $25 Why is the Marginal Cost of the 7 th and 8 th cakes fairly high?

4. If Marcia can sell from 0 - 8 cakes at $40 each, how many will she choose to produce and sell per day if she is trying to maximize her profits?? On the graph, plot the average total cost and marginal cost of producing from 0 – 8 cakes. Plot the marginal cost at the midpoints

5. $120 110 100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 Number of Cakes A v e r a g e T o t a l C o s t a n d M a r g i n a l C o s t Graph Marcia’s ATC, MC and MR

6. $120 110 100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 Number of Cakes A v e r a g e T o t a l C o s t a n d M a r g i n a l C o s t

7. # Total Revenue Total Cost Total Profit Marginal Revenue Marginal Cost 0 1 2 3 4 5 6 7 8

8. Why does total cost exhibit this pattern in this exercise? On the graph, plot the total cost of producing from 0 – 8 cakes.

9. $350 300 250 200 150 100 50 0 1 2 3 4 5 6 7 8 Number of Cakes T o t a l C o s t Graph Marcia’s TC, TFC and TVC

10. $350 300 250 200 150 100 50 0 1 2 3 4 5 6 7 8 Number of Cakes T o t a l C o s t Graph Marcia’s TC, TFC, TVC and TR

11. Total Fixed Costs Do change with output Do not change with output Total Variable Costs Total Costs = TFC + TVC

12. The least cost combination of inputs. Efficient Production The recipe: going from inputs to outputs It varies by firm Technological changes affect the Production function Creative Destruction

13. All variables can change Long Run Factors like labor and raw materials can be changed Short Run:

14. Amount of Labor Amount of Output Data: 00 13 28 312 415 517 618

15. Output Quantity of Labor 18 15 12 9 6 3 1234 5 6 0 Graphing:

16. Now she is considering giving up the business to begin a daycare center in her home. Marcia Deal used to bake and decorate large, elaborate, multi- layered, special occasion cakes.

17. With the Total Cost info, complete the table ChildrenTotal Cost TFCTVCATCMC 0$15 1$40 2$44 3$48 4$68 5$90

18. Graph Marcia’s TC, TFC and TVC $100 $80 $60 $40 $20 0 1 2 3 4 5 6

19. Graph Marcia’s ATC, and Marginal Costs $50 $40 $30 $20 $10 0 1 2 3 4 5 6

20. Marginal Cost Average Fixed Costs Average Variable Costs Average Total Costs = ?+? Change in cost with 1 more output

21. Output TFC TVC TC 01000 150 290 3120 4160 5220 6300 7400 8520 9670 10900 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ 100 100 100 100 100 100 100 100 100 100 100 150 190 220 260 320 400 500 620 770 1000 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

22. Output AFC AVC ATCMC 0 (TFC/output) (TVC/output) (TC/output) (TC1-TC0 ) 1________ _____ 2 ____________ _______ 3 ____________ _______ 4 ____________ _______ 5 ____________ _______ 6 ____________ _______ 7 ____________ _______ 8 ____________ _______ 9 ____________ _______ 10 ____________ _______ 1 2 3 4 5 6 7 8 9 10 100 50 33 25 20 18 14 12 11 10 50 45 40 40 44 50 59 65 74 90 150 95 71 65 64 67 71 78 85 100 50 40 30 40 60 80 100 120 150 230

23. Cost Output 600 500 400 300 200 100 12 34 5 6 0 78910 Total Variable Cost Total Fixed Cost Total Cost 700 800 900

24. Cost Output 60 50 40 30 20 10 12 34 5 6 0 Graphed 78910 70 80 90 and

25. Cost Output 600 500 400 300 200 100 12 34 5 6 0 Graphing: 78910 700 800 900

26. Cost Output 60 50 40 30 20 10 12 34 5 6 0 Graphing: 78910 70 80 90

27. Like Labor In the beginning, output increases with each unit added, but at some point output will begin to decrease with each additional unit of a resource. ATC curve goes down as efficiency increases Then begins to go up The Law of Diminishing Returns

28. LRAC Houses Built 600,000 500,000 400,000 300,000 200,000 100,000 12 34 5 6 0 78910 Constant Returns to Scale Diseconomies of Scale Economies of Scale Gets less efficient as size increases Gets more efficient as size increases Efficient Range of Production

29. Economies of Scale Less efficient as size increases More efficient as size increases Diseconomies of Scale Constant Returns to Scale Efficient Range of Production