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
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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.
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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.
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Chapter Intro-End
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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.
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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
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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
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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?
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Section 1 An Introduction to Supply Supply can be illustrated
by a supply schedule or a supply curve.
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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 tablea supply schedule.supply schedule When
information is plotted on a graph, it forms the supply curve.supply
curve Supply of Compact Discs
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Section 1 An Introduction to Supply (cont.) Normal supply
curves have a positive slopeprices 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
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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.
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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
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Section 1 Change in Supply Several factors can contribute to a
change in supply.
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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
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Section 1 SubsidySubsidy Expectations Government regulations
Number of sellers Change in Supply (cont.)
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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
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Section 1 Elasticity of Supply The response to a change in
price varies for different products.
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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
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Section 1 Supply elasticity has three forms: Elastic Inelastic
Unit elastic Elasticity of Supply (cont.) Elasticity of Supply
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Section 1 Supply elasticity is based solely on production
considerations. A firms 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
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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.
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Section 1-End
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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.
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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
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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
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Section 2 The Production Function The production function shows
how output changes when a variable input such as labor
changes.
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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
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Section 2 The Production Function (cont.) Long run changes
involve other factors of production, including capital.Long run
Marginal productthe extra output or change in total product caused
by adding one more unit of variable inputMarginal product
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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
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Section 2 Stages of Production The stages of production help
companies determine the most profitable number of workers to
hire.
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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
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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
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Section 2-End
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Section 3-Preview Section Preview In this section, you will
learn how businesses analyze their costs and revenues, which helps
them maximize their profits.
Slide 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
Slide 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
Slide 39
Section 3 Measures of Cost Businesses analyze fixed, variable,
total, and marginal costs to make production decisions.
Slide 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
Slide 41
Section 3 Measures of Cost (cont.) Total costTotal cost
Marginal costMarginal cost Production, Costs, and Revenues
Slide 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
Slide 43
Section 3 Applying Cost Principles Fixed and variable costs
affect the way a business operates.
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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.)
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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.)
Slide 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
Slide 47
Section 3 Marginal Analysis and Profit Maximization Businesses
compare marginal revenue with marginal cost to find the level of
production that maximizes profits.
Slide 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
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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.)
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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.)
Slide 51
A.A B.B C.C Section 3 What happens to a firms variable costs if
it operates 24 hours a day? A.Costs go up B.Costs go down C.Costs
remain constant
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Section 3-End
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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
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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.
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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.
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VS-End
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Figure 1
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Figure 2
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Figure 3
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Figure 4
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Figure 5
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Figure 6
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Figure 7
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Profile Kenneth I. Chenault (1952 ) first African American to
be CEO of a top-100 company responsible for continuing American
Expresss 155-year-old tradition of reinvention during global
change
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DFS Trans 1
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DFS Trans 2
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DFS Trans 3
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Vocab1 supply amount of a product offered for sale at all
possible prices
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Vocab2 Law of Supply principle that more will be offered for
sale at higher prices than at lower prices
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Vocab3 supply schedule a table showing how much a producer will
supply at all possible prices
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Vocab4 supply curve a graph that shows the different amounts of
a product supplied over a range of possible prices
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Vocab5 market supply curve a graph that shows the various
amounts offered by all firms over a range of possible prices
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Vocab6 quantity supplied amount offered for sale at a given
price
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Vocab7 change in quantity supplied change in amount offered for
sale when the price changes
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Vocab8 change in supply situation where different amounts are
offered for sale at all possible prices in the market; shift of the
supply curve
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Vocab9 subsidy government payment to encourage or protect a
certain economic activity
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Vocab10 supply elasticity a measure of how the quantity
supplied responds to a change in price
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Vocab11 various different
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Vocab12 interaction action of one on the actions of
another
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Vocab13 production function a graph showing how a change in the
amount of a single variable input changes total output
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Vocab14 short run production period so short that only the
variable inputs (usually labor) can be changed
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Vocab15 long run production period long enough to change the
amounts of all inputs
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Vocab16 total product total output or production by a firm
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Vocab17 marginal product extra output due to the addition of
one more unit of input
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Vocab18 stages of production phases of production that consist
of increasing, decreasing, and negative marginal returns
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Vocab19 diminishing returns stage where output increases at a
decreasing rate as more units of variable input are added
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Vocab20 hypothetical assumed but not proven
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Vocab21 contributes gives time, money, or effort
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Vocab22 fixed costs costs that remain the same regardless of
level of production or services offered
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Vocab23 overhead broad category of fixed costs that includes
rent, taxes, and executive salaries
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Vocab24 variable cost production costs that change when
production levels change
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Vocab25 total cost the sum of fixed costs and variable
costs
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Vocab26 marginal cost extra cost of producing one additional
unit of production
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Vocab27 e-commerce electronic business conducted over the
Internet
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Vocab28 break-even point production level where total cost
equals total revenue
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Vocab29 total revenue total amount earned by a firm from the
sale of its products
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Vocab30 marginal revenue extra revenue from the sale of one
additional unit of output
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Vocab31 marginal analysis decision making that compares the
extra costs of doing something to the extra benefits gained
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Vocab32 profit-maximizing quantity of output level of
production where marginal cost is equal to marginal revenue
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Vocab33 conducted handled by way of
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Vocab34 generates produces or brings into being
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