AOF Business Economics Unit 4 Lesson 9 How

Companies want to be profitable • Companies must balance what it costs to produce their product with what the market will pay for it. • Companies can determine this balance using the data in production, cost, and revenue schedules. • Information from these schedules can help managers adjust operations to maximize profits. When considering production, how do businesses maximize profits?

The production schedule presents information on worker productivity • How many workers the company has • How much the company produces • How much more is produced with each additional worker • When adding additional workers no longer increases productivity Production Schedule Marginal Returns Increasing Decreasing Negative Number of Workers Total Product Marginal Product 0 0 0 1 10 10 2 23 13 3 41 18 4 65 24 5 93 28 6 113 20 7 132 19 8 141 9 9 147 6 10 151 4 11 148 -3 12 138 -10

The cost schedule presents information on the costs associated with production Costs No. of Workers Goods Produced Fixed Costs Variable Costs Total Cost Marginal Cost 0 0 100 -- 1 10 100 200 10 2 23 100 200 300 8 3 41 100 300 400 6 4 65 100 400 500 4 5 93 100 500 600 4 6 113 100 600 700 5 7 132 100 700 800 5 8 141 100 800 900 11 9 147 100 900 1000 17 10 151 1000 1100 25 11 148 100 1200 ** 12 138 100 1200 1300 ** **Marginal cost is the cost for each unit of extra output, and here there is no extra output.

The revenue schedule presents information on revenue and profit Revenues Profit Number of Workers Total Revenue Increase in Revenue Marginal Revenue Total Profit Margin (%) 0 0 -100 No profit 1 170 17 -30 -18% 2 391 221 17 91 23% 3 697 306 17 297 43% 4 1105 408 17 605 55% 5 1581 476 17 981 62% 6 1921 340 17 1221 64% 7 2224 303 17 1444 65% 8 2397 173 17 1497 62% 9 2499 102 17 1499 60% 10 2567 68 17 1467 57% 11 2516 -51 ** 1316 52% 12 2346 -170 ** 1046 45% **Marginal revenue is the gain in revenue from each extra unit of output. Here there is no extra output.

Tables like this show the “break-even point” and the scale of production that maximizes profit Production Schedule Costs Revenues Profit Workers Total Product Marginal Product Total Fixed Cost Total Variable Costs Total Cost 0 0 0 100 1 10 10 100 200 10 17 -30 2 23 13 100 200 300 8 391 17 91 3 41 18 100 300 400 6 697 17 297 4 65 24 100 400 500 4 1105 17 605 5 93 28 100 500 600 4 1581 17 981 6 113 20 100 600 700 5 1921 17 1221 7 132 19 100 700 800 5 2244 17 1444 8 141 9 100 800 900 11 2397 17 1497 9 147 6 100 900 1000 17 2499 17 1499 10 151 4 1000 1100 25 2567 17 1467 11 148 -3 100 1200 2516 17 1316 12 138 -10 100 1200 1300 2346 17 1046 Marginal Cost Total Revenue Marginal Revenue 0 Total Profit -100 1 2