Costs of Production

Unit 7Decision, Decisions

Remember……

Scarcity forces people to make decisions about how they will use their resources!!!

**Economic decision making requires people to consider all the costs and benefits of a decision

 What are trade-offs???What is an opportunity cost???

Fixed Costs

Costs or expenses that are the same no matter how many units of are good are produced Ex: mortgage payments, rent

Variable Costs

Costs or expenses that change with the number of products producedEx: wages, raw materials, electricity bills, water

bills

These costs increase when production increases and decrease when production decreases

Total Costs

Fixed Costs + Variable Costs= Total Costs

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

Marginal Revenue

the extra revenue that results from selling one more unit of an output

Cost-Benefit Analysis

an economic decision making technique that tells us to choose an action or make a decision when the benefits are greater than the costs.

Law of Diminishing Marginal Returnsa company’s goal is to make as much profit as

possibleProfit: is money a company has made after costs

have been deducted. Companies can increase profit by maximizing

efficiency in production. Often, by adding more land, labor, or capital,

companies can increase their profit.Law of Diminishing Marginal Returns: a level

of production in which the marginal product of labor decreases as the number of workers increases.

Other Terms to Know

-Capital Goods: raw materials that are used to make goods and services

-Consumer Goods: goods bought in the market. These goods are consumed and are not used to produce more goods. **As the cost of capital goods rises, the price of producing consumer goods also rises.