Paying Bills

Warm Up:

What are some bills your parents pay monthly?

What must a producer consider when setting a price for the product being sold?

Total Costs = Fixed + Variable

• Fixed Costs:– Constant costs that a firm pays regardless of

production, must pay even if producing NOTHING!!

• Examples:

• Variable Costs:– Costs that change as production changes,

must pay as increase output• Examples:

Rent/Mortgage, Taxes, Insurance, Interest on Loans, Salaried Employees

Hourly Wages, resources, utilities, packaging, shipping, & advertising

COSTS OF DOING BUSINESS

Revenue = Price × Quantity Sold

• Revenue:– The money earned from the sale of the g&s.

Profit: The extra money earned after paying costs

Profit = Total Revenue – Total Costs= (p × q) – (FC + VC)

In Your Notebook:What is the formula for determining profit for a company?Use it to determine if these companies are making profits:

Company A:Price of Good = $10Quantity Sold = 120

Fixed Costs = $300

Variable Costs = $750

Company B:P = $5Q = 600

F.C. = $900

V.C. = $2500

Company C:P= $20Q = 400

F.C. = $1500

V.C. = $6200

Company D:P= $7Q = 300

F.C.= $600

V.C. = $1500

Final Cost of Output

• How do entrepreneurs determine the price they charge?

1. Calculate the costs to produce the good (and charge more).

2. Analyze amount of competition in industry; how much power does one business have