1. Splash Screen

2. Chapter Menu Chapter Introduction Section 1:Section 1:What is Supply? Section 2:Section 2:The Theory of Production Section 3:Section 3:Cost, Revenue, and Profit Maximization Visual Summary

3. Chapter Intro 1 In order to earn some extra money, you are considering opening a lawn or babysitting service. Brainstorm the resources you would need. What specific services would you offer? What prices would you charge? What information do you need to determine answers to these and other questions? Read Chapter 5 to find out about the factors that influence how businesses make production decisions.

4. Chapter Intro 2 1.Buyers and sellers voluntarily interact in markets, and market prices are set by the interaction of demand and supply. 2.The profit motive acts as an incentive for people to produce and sell goods and services.

5. Chapter Intro-End

6. Section 1-Preview Section Preview In this section, you will learn that the higher the price of a product, the more of it a producer will offer for sale.

7. Section 1-Key Terms Content Vocabulary supply Law of SupplyLaw of Supply supply schedulesupply schedule supply curve market supply curvemarket supply curve quantity suppliedquantity supplied change in quantity suppliedchange in quantity supplied Academic Vocabulary various interaction change in supplychange in supply subsidy supply elasticity

8. A.A B.B C.C Section 1 Have you ever gone to a store to buy something that was advertised as being on sale, only to discover the store was sold out of the item? A.Yes, happens all the time B.Yes, has happened a few times C.No, has never happened

9. Section 1 Supply is an amount of product offered for sale at prevailing market prices.Supply Law of Supply: Producers will offer more product at higher prices and less at lower pricesLaw of Supply What is Supply?

10. Section 1 An Introduction to Supply Supply can be illustrated by a supply schedule or a supply curve.

11. Section 1 An Introduction to Supply (cont.) Suppliers must determine how much to offer for sale at various prices, taking into account the factors of production. Like demand, supply can be shown in the form of a table—a supply schedule.supply schedule When information is plotted on a graph, it forms the supply curve.supply curve Supply of Compact Discs

12. Section 1 An Introduction to Supply (cont.) Normal supply curves have a positive slope—prices go up; quantity supply goes up. Economists are more interested in the market supply curve than for a single firm.market supply curve Individual and Market Supply Curves

13. Section 1 An Introduction to Supply (cont.) The quantity supplied is the amount producers bring to market at any given price.quantity supplied A change in price leads to a change in quantity supplied.change in quantity supplied Although the producer has the freedom to adjust production up or down, the interaction of supply and demand usually determines the final price of a product.

14. A.A B.B C.C D.D Section 1 How might a supplier of quality steaks adjust supply when prices increase? A.Manufacture more B.Leave the market C.Merge with another company D.All of the above

15. Section 1 Change in Supply Several factors can contribute to a change in supply.

16. Section 1 A change in supply occurs for several reasons.change in supply –Cost of resources –Productivity –Technology –Taxes Change in Supply (cont.) A Change in Supply

17. Section 1 –SubsidySubsidy –Expectations –Government regulations –Number of sellers Change in Supply (cont.)

18. A.A B.B Section 1 Which way does the supply curve shift if production costs of chicken feed increase? A.Shifts to the right B.Shifts to the left

19. Section 1 Elasticity of Supply The response to a change in price varies for different products.

20. Section 1 Supply, like demand, has elasticity. Supply elasticity measures how the quantity supplied responds to a change in price.Supply elasticity Elasticity of Supply (cont.) Elasticity of Supply

21. Section 1 Supply elasticity has three forms: –Elastic –Inelastic –Unit elastic Elasticity of Supply (cont.) Elasticity of Supply

22. Section 1 Supply elasticity is based solely on production considerations. A firm’s ability to adjust to new prices quickly is likely to be elastic. A firm that takes longer to react to a change in prices is likely to be inelastic. Elasticity of Supply (cont.) Elasticity of Supply

23. A.A B.B C.C Section 1 If the change in quantity supplied is elastic A.An increase in price leads to a proportionally larger increase in output. B.An increase in price leads to a proportionally smaller increase in output. C.An increase in price causes a proportional change in output.

24. Section 1-End

25. Section 2-Preview Section Preview In this section, you will learn how a change in the variable input called “labor” results in changes in output.

26. Section 2-Key Terms Content Vocabulary production functionproduction function short run long run total product marginal productmarginal product stages of productionstages of production Academic Vocabulary hypothetical contributes diminishing returnsdiminishing returns

27. A.A B.B C.C D.D Section 2 Which factor is considered to be the “variable” factor of production? A.Land B.Labor C.Capital D.Entrepreneurs

28. Section 2 The Production Function The production function shows how output changes when a variable input such as labor changes.

29. Section 2 The Production Function (cont.) Production can be illustrated with a production function. production function Economists focus on the short run when they analyze production.short run No changes occur in land, equipment, or technology. Changes in total product are caused by a change in the number of workers.total product Short-Run Production

30. Section 2 The Production Function (cont.) Long run changes involve other factors of production, including capital.Long run Marginal product—the extra output or change in total product caused by adding one more unit of variable inputMarginal product

31. A.A B.B C.C D.D Section 2 Changes in output over the long run include A.Changes in labor B.Changes in technology C.Changes in capital D.Changes in any of the above

32. Section 2 Stages of Production The stages of production help companies determine the most profitable number of workers to hire.

33. Section 2 In deciding how many workers to hire, firm must review the three stages of production.stages of production –Increasing returns, Stage I –Diminishing returns, Stage IIDiminishing returns –Negative returns, Stage III Stages of Production (cont.) Profiles in Economics: Kenneth I. Chenault

34. A.A B.B C.C Section 2 Have you ever worked or volunteered at a business that was in Stage III of the stages of production? A.Yes B.Possibly C.No

35. Section 2-End

36. Section 3-Preview Section Preview In this section, you will learn how businesses analyze their costs and revenues, which helps them maximize their profits.

37. Section 3-Key Terms Content Vocabulary fixed costs overhead variable costs total cost marginal cost e-commerce break-even pointbreak-even point total revenue marginal revenuemarginal revenue marginal analysismarginal analysis profit- maximizing quantity of outputprofit- maximizing quantity of output Academic Vocabulary conducted generates

38. A.A B.B C.C Section 3 Which cost that businesses occur is considered to be overhead? A.Rent/mortgage B.Labor C.Utilities

39. Section 3 Measures of Cost Businesses analyze fixed, variable, total, and marginal costs to make production decisions.

40. Section 3 Measures of Cost (cont.) There are several ways businesses measure costs. –Fixed costsFixed costs Total fixed costs, sometimes called overhead, remain the same. overhead –Variable costsVariable costs

41. Section 3 Measures of Cost (cont.) –Total costTotal cost –Marginal costMarginal cost Production, Costs, and Revenues

42. A.A B.B C.C Section 3 Marginal cost is more useful in measuring than what other cost? A.Variable cost B.Total cost C.Fixed cost

43. Section 3 Applying Cost Principles Fixed and variable costs affect the way a business operates.

44. Section 3 People engage in e-commerce conducted on the Internet becausee-commerce –Overhead costs are low. –There is a low need for inventory. Applying Cost Principles (cont.)

45. Section 3 After businesses measure their costs, they determine the break-even point.break-even point Businesses wanting to do better than break even apply principles of marginal analysis to their costs and revenues. Applying Cost Principles (cont.)

46. A.A B.B C.C Section 3 What is the break-even point? A.Level of production where revenue covers marginal costs B.Level of production where revenue covers total costs C.Level of production where revenue covers fixed and marginal costs

47. Section 3 Marginal Analysis and Profit Maximization Businesses compare marginal revenue with marginal cost to find the level of production that maximizes profits.

48. Section 3 Two key measures of revenue are used to find the amount of output that will produce the greatest profits: –Total revenueTotal revenue –Marginal revenueMarginal revenue Marginal Analysis and Profit Maximization (cont.) The Global Economy & YOU Air & Ground Shipping Market

49. Section 3 Like businesses, we use marginal analysis in our own decision making.marginal analysis When marginal cost is less than marginal revenue, hire more variable inputs (labor) to expand output. Marginal Analysis and Profit Maximization (cont.)

50. Section 3 Profit-maximizing quantity of output is reached when marginal cost and marginal revenue are equal.Profit-maximizing quantity of output Marginal Analysis and Profit Maximization (cont.)

51. A.A B.B C.C Section 3 What happens to a firm’s variable costs if it operates 24 hours a day? A.Costs go up B.Costs go down C.Costs remain constant

52. Section 3-End

53. Law of Supply When the price of a product goes up, quantity supplied goes up. When the price goes down, quantity supplied goes down. VS 1

54. VS 2 Production Function The production function helps us find the optimal number of variable units (labor) to be used in production. As workers are added in Stage I, production increases at an increasing rate. In Stage II, production increases at a decreasing rate because of diminishing returns. In Stage III, production decreases because more workers cannot make a positive contribution.

55. VS 3 Cost and Revenue While businesses have several types of costs, they can find the profit-maximizing quantity of output by comparing marginal cost to their marginal revenue.

56. VS-End

57. Figure 1

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59. Figure 3

60. Figure 4

61. Figure 5

62. Figure 6

63. Figure 7

64. Profile Kenneth I. Chenault (1952– ) first African American to be CEO of a top-100 company responsible for continuing American Express’s 155-year-old tradition of “reinvention” during global change

65. DFS Trans 1

66. DFS Trans 2

67. DFS Trans 3

68. Vocab1 supply amount of a product offered for sale at all possible prices

69. Vocab2 Law of Supply principle that more will be offered for sale at higher prices than at lower prices

70. Vocab3 supply schedule a table showing how much a producer will supply at all possible prices

71. Vocab4 supply curve a graph that shows the different amounts of a product supplied over a range of possible prices

72. Vocab5 market supply curve a graph that shows the various amounts offered by all firms over a range of possible prices

73. Vocab6 quantity supplied amount offered for sale at a given price

74. Vocab7 change in quantity supplied change in amount offered for sale when the price changes

75. Vocab8 change in supply situation where different amounts are offered for sale at all possible prices in the market; shift of the supply curve

76. Vocab9 subsidy government payment to encourage or protect a certain economic activity

77. Vocab10 supply elasticity a measure of how the quantity supplied responds to a change in price

78. Vocab11 various different

79. Vocab12 interaction action of one on the actions of another

80. Vocab13 production function a graph showing how a change in the amount of a single variable input changes total output

81. Vocab14 short run production period so short that only the variable inputs (usually labor) can be changed

82. Vocab15 long run production period long enough to change the amounts of all inputs

83. Vocab16 total product total output or production by a firm

84. Vocab17 marginal product extra output due to the addition of one more unit of input

85. Vocab18 stages of production phases of production that consist of increasing, decreasing, and negative marginal returns

86. Vocab19 diminishing returns stage where output increases at a decreasing rate as more units of variable input are added

87. Vocab20 hypothetical assumed but not proven

88. Vocab21 contributes gives time, money, or effort

89. Vocab22 fixed costs costs that remain the same regardless of level of production or services offered

90. Vocab23 overhead broad category of fixed costs that includes rent, taxes, and executive salaries

91. Vocab24 variable cost production costs that change when production levels change

92. Vocab25 total cost the sum of fixed costs and variable costs

93. Vocab26 marginal cost extra cost of producing one additional unit of production

94. Vocab27 e-commerce electronic business conducted over the Internet

95. Vocab28 break-even point production level where total cost equals total revenue

96. Vocab29 total revenue total amount earned by a firm from the sale of its products

97. Vocab30 marginal revenue extra revenue from the sale of one additional unit of output

98. Vocab31 marginal analysis decision making that compares the extra costs of doing something to the extra benefits gained

99. Vocab32 profit-maximizing quantity of output level of production where marginal cost is equal to marginal revenue

100. Vocab33 conducted handled by way of

101. Vocab34 generates produces or brings into being

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