Warm-Up
?
Profit
Lesson
Question
Lesson Goals
Explain how
Discover what it
means to be “thinking
”
.
on the
calculate their profits.
Learn how
producers
maximize
their profits.
W
2K
Words to Know
Fill in this table as you work through the lesson. You may also use the glossary to
help you.
maximize
to make as
revenue
the total
marginal benefit
marginal cost
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as possible
received from an economic action
in benefit in response to a specific action
the cost associated with one
production
1
unit of
Warm-Up
W
2K
Profit
Words to Know
marginal revenue
the income received from
of a good or service
one additional unit
received from an economic action, minus the
profit
of taking the action
You Are the Boss
You are opening a business making homemade pies.
First, you must answer these questions.
• How much
• What is the
can I make per pie?
of producing too many pies?
You know you must consider supply, demand, and competition to determine your
prices.
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2
Instruction
Profit
Slide
2
Definition of Profit
Profit is the
costs.
that producers make after covering their production
as low as possible
• Producers want to keep their production
to allow for greater profit.
• Profit motivates producers to change the quantity
prices change.
Calculating Profit
Profit is calculated by subtracting the total production costs from revenue.
-
Production cost
Calculating Profit
• A producer
• The
a painting for $150.
cost of production was $50
150 − 50 =
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3
=
when
Instruction
Profit
Slide
4
Determining Production Costs
Production costs include any resources used to produce a good or service.
•
•
and resources
•
or physical space
Determining Revenue
Revenue is the amount that
receive when selling a good.
• An ice cream shop sells sundaes for $7.
• The shop sells seven sundaes in one day.
• The total revenue for the day is $
.
Factors That Can Affect Profit
Many factors can affect a company’s profits, including:
•
• changes in
in supply or demand that alter the market price.
.
• changes in
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.
4
Instruction
Profit
Slide
7
Marginal Benefit
Producers must understand marginal benefit, which is:
• the
in benefit resulting from a specific action.
• the possible gain from producing an
item.
Marginal Cost
Marginal cost is the cost of producing
more unit of a good or service.
Find the
Calculate the cost per
unit.
between one unit and the
next.
Marginal Cost Patterns
Changes in marginal cost
usually follow a pattern.
Pies
Produced
per Day
Total
Cost
Marginal
Cost
1 pie
$1.00
$1.00
2 pies
$1.50
$0.50
3 pies
$1.75
$0.25
4 pies
$2.25
$0.50
5 pies
$3.25
$1.00
cost begins to
6 pies
$5.00
$1.75
as more costs are required.
7 pies
$7.25
$2.75
• At first, marginal cost
as
production
.
• Eventually, marginal
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5
Instruction
Profit
Slide
7
Marginal Cost Curve
Marginal Cost
Circle the part of the curve that represents the upward trend in the marginal cost.
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Marginal Cost of Producing Pies
1st Pie
2nd Pie
3rd Pie
4th Pie
5th Pie
6th Pie
7th Pie
8th Pie
Quantity Supplied
9
Marginal Revenue
Marginal revenue is the
gained from selling an additional unit of
a good or service.
• In free markets, price is set by
such forces as supply and
demand.
• Marginal revenue may remain
the
for a period
of time.
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6
Pies
produced
per day
Total
revenue
Marginal
revenue
0
$0
$0
1
$10
$10
2
$20
$10
3
$30
$10
4
$40
$10
5
$50
$10
6
$60
$10
7
$70
$10
Instruction
Profit
Slide
9
Maximizing Profit
Producers can maximize profit by:
• keeping marginal costs
marginal revenues.
• finding ways to
marginal costs.
Maximizing Profit
Circle the cost and revenue used to calculate profit for 6 pies.
© Edgenuity, Inc.
Pies
Produced
per Day
Total
Cost
Marginal
Cost
Total
Revenue
Marginal
Revenue
Profit
(= total revenue −
total cost)
0
$0
—
$0.00
—
$0.00
1
$1.00
$1.00
$10.00
$10.00
$9.00
2
$1.50
$0.50
$20.00
$10.00
$18.50
3
$1.75
$0.25
$30.00
$10.00
$28.25
4
$2.25
$0.50
$40.00
$10.00
$37.75
5
$3.25
$1.00
$50.00
$10.00
$46.75
6
$5.00
$1.75
$60.00
$10.00
$55.00
7
$7.25
$2.75
$70.00
$10.00
$62.75
7
Instruction
Profit
Slide
9
Marginal Cost and Profit
The most profitable point is where marginal cost
marginal revenue.
• Up until that point, every pie baked is going to be sold for a profit.
• Once marginal cost
money on every pie it makes.
is
© Edgenuity, Inc.
marginal revenue, the company
Pies
per Day
Total Cost
Marginal
Cost
Total
Revenue
Profit
7
$7.25
$2.75
$70.00
$62.75
8
$11.25
$4.00
$80.00
$68.75
9
$16.75
$5.50
$90.00
$73.25
10
$24.00
$7.25
$100.00
$76.00
11
$33.00
$9.00
$110.00
$77.00
12
$44.00
$11.00
$120.00
$76.00
8
Summary
?
Profit
Lesson
Question
How can producers maximize their profits?
Answer
Slide
2
Review: Calculating Profit
To calculate profit, producers must know the monetary amounts that make
up profit.
Revenue
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=
-
9
Profit
Summary
Profit
Slide
2
Review: Thinking on the Margin
Producers use margins to help determine how much of a good should
be produced.
– the change in benefit as the result of a
• Marginal
specific action or behavior
• Marginal
a good
– the cost of producing one additional unit of
• Marginal
– the additional income gained from selling an
additional unit of a good
Use this space to write any questions or thoughts about this lesson.
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10