Chapter 5 Lesson 3 Costs Revenue and Profit

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Chapter 5 : Lesson 3 Costs, Revenue, and Profit Maximization

Chapter 5 : Lesson 3 Costs, Revenue, and Profit Maximization

Essential Question: Why is marginal revenue more important than the average revenue?

Essential Question: Why is marginal revenue more important than the average revenue?

• Pretend you are going to open a hotdog selling business. – Now

• Pretend you are going to open a hotdog selling business. – Now list your costs • List the costs that vary with how much you produce • List the costs that you always have no matter how much you produce. – What price do you charge per hotdog? How do you know how much to charge?

Fixed Cost: the cost that a business incurs even if the plant is idle

Fixed Cost: the cost that a business incurs even if the plant is idle and output is zero. Also known as “overhead”

Variable Cost: a cost that changes with output…associated with labor and raw materials

Variable Cost: a cost that changes with output…associated with labor and raw materials

Cost What is the equation total cost? FC + VC = TC

Cost What is the equation total cost? FC + VC = TC

Total Cost: sum of variable cost plus fixed cost; all costs associated with production.

Total Cost: sum of variable cost plus fixed cost; all costs associated with production.

Revenue Equation P x Q = TR

Revenue Equation P x Q = TR

Units Total Price Bought Revenue 1. 00 1, 000 $1, 000 1. 25 800

Units Total Price Bought Revenue 1. 00 1, 000 $1, 000 1. 25 800 1, 000 1. 50 500 750 2. 00 200 400 50 250 10. 00 3 30 TR PROFIT

Units Total Price Bought Revenue Costs 1. 00 1, 000 $330 1. 25 800

Units Total Price Bought Revenue Costs 1. 00 1, 000 $330 1. 25 800 1, 000 290 1. 50 500 750 230 2. 00 200 400 135 5. 00 50 250 125 10. 00 3 30 116

Units Total Price Bought Revenue Costs Profit 1. 00 1, 000 $330 $670 1.

Units Total Price Bought Revenue Costs Profit 1. 00 1, 000 $330 $670 1. 25 800 1, 000 290 710 1. 50 500 750 230 520 2. 00 200 400 135 265 5. 00 50 250 125 (86) 3 30 116 10. 00 Is business in the business to make a NO!!! To MAXIMIZE PROFIT!!!! profit?

Break Even Point: the total output or total product the business needs to sell

Break Even Point: the total output or total product the business needs to sell in order to cover its total costs • What is the # of units sold at $1. 25 to break even?

Marginal Revenue: extra revenue from all the sale of one additional unit of output

Marginal Revenue: extra revenue from all the sale of one additional unit of output

Marginal Cost: extra cost of producing one additional unit of production.

Marginal Cost: extra cost of producing one additional unit of production.

What is the profit maximizing output? ? Q P TR MR TC 0 $6

What is the profit maximizing output? ? Q P TR MR TC 0 $6 $0 1 $6 $5 2 $6 $8 3 $6 $12 4 $6 $17 5 $6 $23 6 $6 $30 7 $6 $38 8 $6 $47 $3 MC Profit (TR-TC) Change in Profit

Profit-Maximizing Quantity of Output : Level of production where marginal cost is equal to

Profit-Maximizing Quantity of Output : Level of production where marginal cost is equal to marginal revenue

Profit Maximizing = MR = MC • Profit-Maximizing quantity of output: MR = MC

Profit Maximizing = MR = MC • Profit-Maximizing quantity of output: MR = MC

The Production Function

The Production Function

E-Commerce: electronic business or exchange conducted over the Internet.

E-Commerce: electronic business or exchange conducted over the Internet.

Review Question: Chapter 5 : Lesson 3 Read pages 142 -146 and answer Review

Review Question: Chapter 5 : Lesson 3 Read pages 142 -146 and answer Review Questions on page 146. Hand in Google Class Room.

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Background to Supply Costs Revenue and Profit CostsBackground to Supply Costs Revenue and Profit Costs
Lesson 4 REVENUE PROFIT MAXIMISATION LOSS MINIMISATION REVENUELesson 4 REVENUE PROFIT MAXIMISATION LOSS MINIMISATION REVENUE
PROFIT Lesson Objectives Distinguish between costs revenue andPROFIT Lesson Objectives Distinguish between costs revenue and
LESSON 6 Topics Covered Business Costs Revenue ProfitLESSON 6 Topics Covered Business Costs Revenue Profit
Profit Teorije o profitu Raunovodstveni profit Ekonomski profitProfit Teorije o profitu Raunovodstveni profit Ekonomski profit
Profit Chain PROFIT CHAIN INNOVATION MANAGEMENT Profit ChainProfit Chain PROFIT CHAIN INNOVATION MANAGEMENT Profit Chain
Revenue and Profit Maximization Revenue Optimization Exercise ThisRevenue and Profit Maximization Revenue Optimization Exercise This
PROFIT AND LOSS ACCOUNT REVENUE RECOGNITION Revenue isPROFIT AND LOSS ACCOUNT REVENUE RECOGNITION Revenue is
5 2 1 COSTS REVENUE AND PROFIT IB5 2 1 COSTS REVENUE AND PROFIT IB
Revenue Costs Profit and Loss Learning Objectives UnderstandRevenue Costs Profit and Loss Learning Objectives Understand
Background to Supply Costs Revenue and Profit 17Background to Supply Costs Revenue and Profit 17
Background to Supply Costs Revenue and Profit 6Background to Supply Costs Revenue and Profit 6
Background to Supply Costs Revenue and Profit 10Background to Supply Costs Revenue and Profit 10
Business Revenues Total revenue Average revenue Marginal revenueBusiness Revenues Total revenue Average revenue Marginal revenue
PUBLIC REVENUE SOURCES OF PUBLIC REVENUE Public RevenuePUBLIC REVENUE SOURCES OF PUBLIC REVENUE Public Revenue
Production Costs Revenue Maximizing Profit Mc GrawHillIrwin 2012Production Costs Revenue Maximizing Profit Mc GrawHillIrwin 2012
Topics Covered Business Costs Revenue Profit Expenditure BreakTopics Covered Business Costs Revenue Profit Expenditure Break
Topics Covered Business Costs Revenue Profit Expenditure BreakTopics Covered Business Costs Revenue Profit Expenditure Break