Paying Bills Warm Up What are some bills
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?
COSTS OF DOING BUSINESS • Fixed Costs: – Constant costs that a firm pays regardless of production, must pay even if producing NOTHING!! • Examples: • Variable Costs: Rent/Mortgage, Taxes, Insurance, Interest on Loans, Salaried Employees – Costs that change as production changes, must pay as increase output • Examples: Hourly Wages, resources, utilities, packaging, shipping, & advertising Total Costs = Fixed + Variable
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 = $10 Quantity Sold = 120 Company B: P = $5 Q = 600 Fixed Costs = $300 F. C. = $900 Variable Costs = $750 V. C. = $2500 Company C: P= $20 Q = 400 Company D: P= $7 Q = 300 F. C. = $1500 F. C. = $600 V. C. = $6200 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
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