Lesson Plan
Course Title: Principles of Business, Marketing, and Finance
Session Title: When Bigger is Better
Performance Objective:
The student analyzes cost and profit relationships in finance.
Specific Objectives:
4 (7) (E) Describe the concept of economies of scale.
Preparation
TEKS Correlations:
This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities
may result in the elimination of one or more of the TEKS listed.
Interdisciplinary Correlations:
English:
§110.42. English I (c) The student is expected to:
(8)(B) read in such varied sources as diaries, journals, textbooks, maps, newspapers, letters,
speeches, memoranda, electronic texts, and other media;
(6)(A) expand vocabulary through wide reading, listening, and discussing; and,
(4)(F) compile written ideas and representations into reports, summaries, or other formats and draw
conclusions.
Economics:
§118.2. Economics (c) The student is expected to:
(5)(B) Interpret a production-possibilities curve and explain the concepts of opportunity costs and
scarcity.
(23)(F) Evaluate economic-activity patterns using charts, tables, graphs, and maps.
Instructor/Trainer
References:
1. O’Sullivan, Arthur and Sheffrin, Steven M. (2007). Economics: Principles in Action. Boston:
Pearson Prentice Hall.
2. http://www.eduplace.com/graphicorganizer/pdf/kwl.pdf
3. www.bized.co.uk/educators/he/pearson/models/costs.ppt
4. http://www.bized.co.uk/educators/16-19/economics/firms/lesson/scale.htm
5. http://www.mbs.edu/home/jgans/mecon/value/Segment%203_6.htm
6. http://news.morningstar.com/classroom2/course.asp?docId=144752&page=3&CN=COM
7. http://www.bized.co.uk/educators/16-19/economics/firms/activity/scale.htm
Optional websites
Copyright © Texas Education Agency, 2011. All rights reserved.
1
1. http://www.bized.co.uk/virtual/dc/farming/theory/th4.htm
2. http://www.bized.co.uk/educators/16-19/economics/firms/lesson/dimreturns.htm
3. http://www.economicsnetwork.ac.uk/showcase/hedges_tennis
Instructional Aids:
1. Optional – Overhead, SmartBoard, Internet, ELMO (if available and where applicable)
Materials Needed:
1. Textbook
2. Internet
3. Copies of handouts
Teacher Preparation:
Instructors should review content from textbook and websites as well as lesson plan addendums prior
to class.
Learner Preparation:
Learners will review Chapter 7, Section 2 Monopoly from Economics in Action the night before class.
Lesson Plan
Vocabulary:
Economies of Scale
Factors that cause a producer’s average cost per unit to fall as output rises.
From Economics: Principles in Action
Reduction in long-run average and marginal costs, due to increase in size of an operating unit (a
factory or plant, for example). Economics of scale can be internal to a firm (cost reduction due to
technological and management factors) or external (cost reduction due to the effect of technology in
an industry).
http://www.businessdictionary.com/
Diseconomies of Scale
Increase in long-term average cost of production as the scale of operations increases beyond a
certain level. This anomaly may be caused by factors such as (1) over-crowding where men and
machines get in each other's way, (2) greater wastage due to lack of coordination, or (3) a mismatch
between the optimum outputs of different operations.
http://www.businessdictionary.com/
Cost Curve
A graph of the costs of production as a function of total quantity produced. In a free market economy,
productively efficient firms use these curves to find the optimal point of production, where they make
Copyright © Texas Education Agency, 2011. All rights reserved.
2
the most profits.
Short Run Average Total Cost
The average total cost curve is constructed to capture the relation between cost per unit and the level
of output, ceteris paribus. A productively efficient firm organizes its factors of production in such a way
that the average cost of production is at lowest point and intersects Marginal Cost.
http://en.wikipedia.org/wiki/Short_run_average_cost
Long Run Average Cost
The long-run average cost curve depicts what the minimum per-unit cost of producing a certain
number of units would be if all productive inputs could be varied. Given that LRAC is an average
quantity, one must not confuse it with the long-run marginal cost curve, which is the cost of one more
unit. The LRAC curve is created as an envelope of an infinite number of short-run average total cost
curves. The typical LRAC curve is U-shaped, reflecting economies of scale when negatively-sloped
and diseconomies of scale when positively sloped.
http://en.wikipedia.org/wiki/Long_run_average_cost
Constant Return to Scale
Production process with neither economies nor diseconomies of scale: the output of the process
increases or decreases simultaneously and in step with increase or decrease in the inputs. A plant
with constant returns to scale is equally efficient in producing small batches as it is in producing large
batches.
http://www.businessdictionary.com/
Introduction (LSI Quadrant I):
“People can have the Model T in any color – as long as it’s black,” is a quote by Henry Ford. This is
the philosophy that drove Ford’s assembly line breakthrough which helped to revolutionize mass
production processes internationally. Ford wanted to produce massive quantities of cars for the
masses and sell these cars at affordable prices. He was indeed successful:
Year
1910
1911
1912
Cars Produced
19,000
34,500
78,440
He also experienced great results through the impact of automation. The time it took to create one
Model T decreased 7 hours from 12 hours 30 minutes to 5 hours 30 minutes.
One of the key concepts behind economically mass producing affordable cars in minimal time is the
idea of economies of scale. As more cars were mass produced, the costs of manufacturing were
reduced. This is how Ford Motor Company could afford to slash prices and yet make noteworthy
profit.
Today’s lesson is on economies of scale and how does it impacts a company’s profits.
Copyright © Texas Education Agency, 2011. All rights reserved.
3
http://www.quotationspage.com/quotes/Henry_Ford/
http://www.wiley.com/legacy/products/subject/business/forbes/ford.html
Outline
Outline (LSI Quadrant II):
Instructors can use the PowerPoint presentation, slides, handouts, and note pages to support and
reinforce the following outline.
MI
Outline
I. Application – Guided
Practice
A. Students visualize and
communicate the
concept of economies of
scale.
B. Students explore the
meaning of economies
of scale through visual
and kinesthetic
measures.
II. Application – Independent
Practice
A. Students demonstrate
comprehension of
student expectation by
applying information
from guided practice.
B. Students explain
rationale for each
producer listed.
I.
`
Application – Guided Practice
A. Instructor leads class in a discussion
of economies of scale through the
following steps.
1. Complete a K-W-L chart
regarding the students’
understanding and wonderings
about the economies of scale.
2. Discuss Economies of Scale
(Chapter 7, Section 2) from
textbook to ensure basic
understanding.
a. Carefully review Figure 7.3.
3. Display PowerPoint found at the
following websites (select as
appropriate, however they both
have concepts that are useful for
class discussion):
www.bized.co.uk/educators/he/pe
arson/models/costs.ppt
http://www.bized.co.uk/educators/
1619/economics/firms/lesson/scale.h
tm
4.
Improve understanding of how
the SRAC and LRAC are related.
a. Option 1: Incorporate
information from a
microeconomics textbook.
b. Option 2: Use on-line
resources.
1) Excellent website
content with
accompanying video
explanation (video can
Copyright © Texas Education Agency, 2011. All rights reserved.
4
be found under
animation link):
http://www.mbs.edu/home/
jgans/mecon/value/Segme
nt%203_6.htm
5.
Collaboratively discuss an online
article:
http://news.morningstar.com/class
room2/course.asp?docId=144752&
page=3&CN=COM
6.
Ask students to collaboratively
give their best definition of
economies of scale.
a.
Students present
responses to the class.
b.
Class develops best
response.
B. Instructor allows students to explore
content; activities appeal to
kinesthetic learners.
1. Print the Economies of Scale
activity found in the Excel file
entitled Tennis Ball
Spreadsheet (activity is on the
ECONOMIES OF SCALE tab).
a.
Ensure that each group’s
Total Product, Marginal
Product, and Variable
Cost (Product) columns
are populated with results
from Day 1 of the law of
diminishing returns lesson
plan.
2. Direct students to complete
Average Cost column with their
respective group’s results from
day 1 of the law of diminishing
returns lesson plans.
a. Average Cost = Total Cost /
Total Product.
b. Total Cost = Total Fixed
Costs + Total Variable Costs
3. Provide students with math graph
sheets.
4. Instruct students to complete a
line graph displaying Average
Copyright © Texas Education Agency, 2011. All rights reserved.
5
II.
Cost (column I).
a. X-axis: Output
b. Y-axis: Average Cost
c. The teacher’s guide to the
results of this activity starts
on Row 35 (highlighted in
green).
C. Ask students what the graph
communicates about average cost.
D. Discuss what was clarified in the KW-L chart and questions that are yet
unanswered.
Application – Independent Practice
A. Instructor directs class to read and
independently complete the activity
found at:
http://www.bized.co.uk/educators/
1619/economics/firms/activity/scale.
htm
1. For point of reference, make the
following PowerPoint available for
student review:
http://www.bized.co.uk/educators/
1619/economics/firms/lesson/scale.h
tm
B. Instructor leads students in a
discussion of the questions posed at
the end of the activity.
Summary
I. Summary Review
Q
u
e
s
t
i
o
n
s
I. Summary Review Questions
A. Ask review questions found on page 8
(see Summary)
A. Students will answer
review questions
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6
Evaluation
I.
Evaluation
A. Students apply
understanding of
economies of scale.
Extension/Enrichment
I. Extension/Enrichment
A. Students extend
B.
understanding of
content by researching
manufacturing and/or
merchandising
companies similar to
Ford.
Students experience
economies of scale
through kinesthetic
measures.
I. Evaluation
A. Instructor directs students to research
Henry Ford’s assembly line process and
associate it to the principle of
economies of scale.
1. Student must integrate the answers
to the following questions in the
paper:
a. What does “economies of
scale” mean?
b. How was the Model T
production process effective?
c. What impact did economies of
scale have on Ford’s financial
results?
d. Describe how management
was able to slash prices and
still make record-breaking
profits.
e. How did Henry Ford’s Model T
production impact today’s
manufacturing process?
2. Format
a. Two-pages
b. Double spaced
c. Arial, size 11 font
3. Rubric is attached.
I.
Extension/Enrichment
A. Create a list of companies that maintain
low prices due to economies of scale.
B. Extend lesson by asking students to
create visual representation of
economies of scale (i.e., factory floor
models; PowerPoint)
Copy and paste Multiple Intelligences Graphic in appropriate place in left column.
Copyright © Texas Education Agency, 2011. All rights reserved.
7
Verbal
Linguistic
Logical
Mathemati
cal
Visual
Spatial
Musical
Rhythmic
Bodily
Kinestheti
c
IntraPersonal
InterPersonal
Naturalist
Existentialist
Application
Guided Practice (LSI Quadrant III):
I.
Application – Guided Practice
A. Instructor leads class in a discussion of economies of scale through the following steps.
1. Complete a K-W-L chart regarding the students’ understanding and wonderings about
the economies of scale.
2. Discuss Economies of Scale (Chapter 7, Section 2) from textbook to ensure basic
understanding.
a. Carefully review Figure 7.3.
3. Display PowerPoint found at the following websites (select as appropriate, however they
both have concepts that are useful for class discussion):
www.bized.co.uk/educators/he/pearson/models/costs.ppt
http://www.bized.co.uk/educators/16-19/economics/firms/lesson/scale.htm
4. Improve understanding of how the SRAC and LRAC are related.
a. Option 1: Incorporate information from a microeconomics textbook.
b. Option 2: Use on-line resources.
1)
Excellent website content with accompanying video explanation (video can
be found under animation link):
http://www.mbs.edu/home/jgans/mecon/value/Segment%203_6.htm
5.
Collaboratively discuss an online article:
http://news.morningstar.com/classroom2/course.asp?docId=144752&page=3&CN=COM
6.
B.
Ask students to collaboratively give their best definition of economies of scale.
a.
Students present responses to the class.
b.
Class develops best response.
Instructor allows students to explore content; activities appeal to kinesthetic learners.
1. Print the Economies of Scale activity found in the Excel file entitled Tennis Ball
Spreadsheet (activity is on the ECONOMIES OF SCALE tab).
a.
Ensure that each group’s Total Product, Marginal Product, and Variable
Copyright © Texas Education Agency, 2011. All rights reserved.
8
Cost (Product) columns are populated with results from Day 1 of the law of
diminishing returns lesson plan.
2.
Direct students to complete Average Cost column with their respective group’s results
from day 1 of the law of diminishing returns lesson plans.
a. Average Cost = Total Cost / Total Product.
b. Total Cost = Total Fixed Costs + Total Variable Costs
3.
Provide students with math graph sheets.
4.
Instruct students to complete a line graph displaying Average Cost (column I).
a. X-axis: Output
b. Y-axis: Average Cost
c. The teacher’s guide to the results of this activity starts on Row 35 (highlighted in
green).
C.
Ask students what the graph communicates about average cost.
D.
Discuss what was clarified in the K-W-L chart and questions that are yet unanswered.
Independent Practice (LSI Quadrant III):
Application – Independent Practice
A. Instructor directs class to read and independently complete the activity found at:
II.
http://www.bized.co.uk/educators/16-19/economics/firms/activity/scale.htm
1.
For point of reference, make the following PowerPoint available for student review:
http://www.bized.co.uk/educators/16-19/economics/firms/lesson/scale.htm
B.
Instructor leads students in a discussion of the questions posed at the end of the activity.
Summary
Review (LSI Quadrants I and IV):
•
•
Question: Describe economies of scale.
Answer: Factors that cause a producer’s average cost per unit to fall as output rises.
•
•
Question: Compare short-run and long-run curves.
Answer: The short-run curve reflects the producer’s ability to affect variable costs, only;
fixed costs
cannot be adjusted due to time constraints. In a long-term curve, all factors of
production can
be adjusted.
Copyright © Texas Education Agency, 2011. All rights reserved.
9
•
•
Question: What is meant by diseconomies of scale?
Answer: When a producer becomes too big for its own good and cost per unit begins to rise.
•
•
Question: Describe constant returns of scale.
Answer: A point in the level of production in which the producer’s output increases, but the
average cost
does not continue to fall.
•
•
Question: What is the difference between diminishing returns and economies of scale?
Answer: Both are associated with output and average cost. “The shape of short run costs
(MC, ATC
and AVC) is determined by the law of diminishing returns. The shape of long run
ATC is
determined by economies of scale (and diseconomies of scale).”
http://welkerswikinomics.com/
Evaluation
Informal Assessment (LSI Quadrant III):
Evaluate answers to independent practice.
 Address issues raised in independent practice.
Formal Assessment (LSI Quadrant III, IV):
I.
Evaluation
Instructor directs students to research Henry Ford’s assembly line process and
associate it to the principle of economies of scale.
1.
Student must integrate the answers to the following questions in the paper:
a. What does “economies of scale” mean?
b. How was the Model T production process effective?
c. What impact did economies of scale have on Ford’s financial results?
d. Describe how management was able to slash prices and still make
record-breaking profits.
e. How did Henry Ford’s Model T production impact today’s manufacturing
process?
2.
Format
a. Two-pages
b. Double spaced
c.
Arial, size 11 font
3.
Rubric is attached.
A.
Extension/Enrichment (LSI Quadrant IV):
I.
Extension/Enrichment
Copyright © Texas Education Agency, 2011. All rights reserved.
10
A.
B.
Create a list of companies that maintain low prices due to economies of scale.
Extend lesson by asking students to create visual representation of economies of scale
(i.e., factory floor models; PowerPoint)
Copyright © Texas Education Agency, 2011. All rights reserved.
11
NAME _____________________________________________
WRITING EVALUATION
CATEGORY
20
18
16
Introduction (topic
sentence)
The topic sentence is an excellent
introduction to the paragraph. It
tells the main idea and gives the
big picture
The topic sentence is a good
introduction to the paragraph. It
may too broad or have a detail
included.
Sequencing
(Organization)
Details are placed in a logical
order and the way they are
presented effectively keeps the
interest of the reader.
Ideas
Writer has an excellent grasp of
the topic. Student uses his/her
voice to express thoughts vividly.
Details are placed in a logical
order, but the way in which they
are presented/introduced
sometimes makes the writing less
interesting.
Writer has a good grasp of the
Writer knows the subject but does
subject. Student uses his/her voice not use his/her voice as much as
at times to express thoughts.
possible to express thoughts.
Writer makes no errors in grade
level appropriate capitalization or
punctuation.
Writer makes a couple of errors of Writer makes a few errors of grade Writer makes many errors of grade
grade level appropriate
level appropriate capitalization
level appropriate capitalization
capitalization and/or punctuation. and/or punctuation.
and/or punctuation.
Grammar & Spelling
(Conventions)
Capitalization &
Punctuation
(Conventions)
The topic sentence somewhat
introduces the paragraph. It does
not introduce the paragraph very
well and it includes too many
details.
Some details are not in a logical or
expected order, and this distracts
the reader.
14
The topic sentence does not
introduce the paragraph.
Many details are not in a logical or
expected order. There is little
sense that the writing is organized.
Writer uses just the facts to relay
thoughts. There is not much of the
student's own personality in the
writing.
Writer makes no errors in
Writer makes a couple of errors in Writer makes several errors in
Writer makes many errors in
grammar or spelling that are grade grammar or spelling that are grade grammar or spelling that are grade grammar or spelling that are grade
level appropriate.
level appropriate.
level appropriate.
level appropriate.
TOTAL
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POINTS AWARDED