1. Making Product Decisions 4.3 Productivity—The amount of goods produced per unit of input.(Efficiency) Total Product Output—All the product that a company makes in a given period of time. Marginal Product—The change in output generated by adding one more unit of input. Pizza—5 people produce 100 pizzas/day Add 1 more person: 115 pizzas produced/day What was the marginal product? ______

2. Law of Diminishing Returns Describes the effect that varying the level of an input has on total and marginal product. (Productivity increases up to a point, then the marginal product starts to fall.) Ex. Pizza owner applying laborers to the kitchen? When do returns start to fall?

3. Diminishing Marginal Utility # PeoplePizzas SoldAvg. Person Marginal Product 510020 612020 71752555 82403065 925027.710 23023-20

4. Marginal Returns 4.3 Increasing Marginal Returns— Diminishing Marginal Returns— Negative Marginal Returns— (See Figure 4.5 transparency)

5. Marginal Returns--Visual

6. Cost of Production 4.3 The costs of production directly affects the amount of profit businesses make. Ex. Sat. morning time to mow 1 lawn: You are paid $20 1 takes 1 hour to mow, other takes 2 hrs. Which do you mow? Why? Husqvarna stealth lawn mower $2399 Watch out lawn businesses!

7. Costs of Production 4.3 Fixed Costs—Production costs that do not change as the level of output changes. Ex. Rent, taxes, salaries Depreciation—The lessening value of a capital good.

8. Depreciation Example You buy a $40,000 truck for your business: Government allows you to depreciate it: Year 1 = $8,000 Year 2 = $8,000 Year 3 = $8,000 Year 4 = $8,000 Year 5 = $8,000 Total Depreciation = $40,000 tax write off

9. Costs of Production 4.3 Variable Costs—Changes as the level of output changes. Ex. Raw materials, wages, Total Costs—The sum of fixed and variable production costs for a business. Marginal Costs—The additional costs of producing one more unit of output.