ECON 2113 Project

ECON 2113 : 

ECON 2113 Supply and Profit Maximization Chapters 6,8 Rebecca Settle, Ryan Bowman, Schaeffer Norwood, Joshua Norwood

Determinates Of Supply : 

Determinates Of Supply A seller will offer more units if the benefit of selling extra output increases relative to the cost of production of that item. Technology, Input Prices, The Number of Suppliers, Expectations, and Changes in Prices of Other Products all are important determinates of supply. Technology- change that might be made would be that rational producers might adopt technology that will reduce their cost of production

Determinates of Supply : 

Determinates of Supply Input Prices- changing the prices of important inputs can change overnight, rising to larger supply shifts. Number of Suppliers- If container recyclers die or retire at a higher rate than new recyclers enter the industry, the supply curve for recycling services will shift to the left.

Determinates of Supply : 

Determinates of Supply Expectations are made about the future price movements and can even affect how much a seller chooses to offer in the current market. For example, if a group expects a price of an item to be higher in the future than it is now because of its use in other ways, or if it were to be lower than this year’s they would try to offer more aluminum in today’s sales.

Determinates of Supply : 

Determinates of Supply Changes in Prices of Other Products- if a price shift were to occur for a precious metal say the price of platinum falls making it more available and having less exclusivity prospects might shift their attention to gold or silver.

Definition of Cost : 

Definition of Cost Average Cost- total cost of undertaking n units of an activity divided by n Average total cost (ATC)- total cost divided by total output Average Variable cost (AVC)- variable cost divided by total output

Definition of Cost : 

Definition of Cost Marginal Cost- the marginal cost of an activity is the increase in total cost that results from carrying out one additional unit of the activity; as output changes from one level to another, the change in total cost divided by the corresponding change in output.

Definition of Cost : 

Definition of Cost Fixed Cost- a cost that does not vary with the level of an activity; the sum of all payments made to the firm’s fixed factors of production

The two costs that help to determine the profit : 

The two costs that help to determine the profit Implicit costs- The opportunity costs of the resources supplied by the firm’s owner. Explicit Costs- The actual payments the firm makes to its factors of production and other suppliers

Accounting Profit : 

Accounting Profit This is the most common profit idea The equation: Total Revenue - Explicit costs This profit is easy to compute and easy to compare across the different firms Accounting Profit = Total Revenue – Explicit Cost

Economic Profit : 

Economic Profit Also known as the excess profit It is the difference between a firm’s total revenue and the sum of its explicit and implicit costs Economic Profit = Total Revenue – Explicit Cost – Implicit Cost

Economic Profit Vs. Accounting Profit : 

Economic Profit Vs. Accounting Profit For the Accounting profit only the revenue and the explicit costs are taken in to consideration to calculate the profit. In the Economic profit takes into consideration both implicit and explicit costs as well as the revenue to calculate the profit.

Profit Maximization : 

Profit Maximization Profit: The total revenue a firm receives from the sale of its product minus all cost. Profit = Total Revenue – Total Cost Profit = Total Revenue – Variable Cost – Fixed Cost

Profit Maximization : 

Profit Maximization When Maximizing Profit the law of diminishing returns comes into play refers to situations in which at least some factors of production are fixed. When Price = Marginal Cost This is the Maximization Profit Condition

Profit Maximization : 

Profit Maximization If Price is greater than Marginal Cost, the firm can increase its profit by expanding production and sales. If Price is less than Marginal Cost, the firm can increase its profit by producing and selling less output.

Profit Maximization : 

Profit Maximization Pawn Shops buy items as low as possible and sell them to the highest bid in order to maximize profits. Pawn Stars TV Show

Economies of Scale : 

Economies of Scale Are the cost advantages that a business obtains due to expansion. They are factors that cause a producer’s average cost per unit to fall as scale is increased. Long run concept that refer to reductions in unit cost as the size of a facility or scale increases.

Economies of Scale : 

Economies of Scale Older companies can lower prices to make newer companies go out of business.

Economies of Scale Graph : 

Economies of Scale Graph As quantity increases from Q to Q2, the average cost of each unit decreases from C to C1.

Economies of Scale : 

Economies of Scale Returns to Scale: refers to percentage change in output from a given percentage change in all inputs. Average cost decreases as output increases

Economies of Scale : 

Economies of Scale Increasing returns to Scale: output increases by a greater percentage than increase in inputs. Constant returns to Scale: doubling all inputs doubles output. Natural Monopoly: a monopoly that results from economies of scale

References : 

References http://www2.scc-fl.edu/falbritton/ECO2023/Micro%20Learning%20Tools/Micro%20Chapters%20at%20a%20Glance/Chapter%209%20&%2010/micro1.jpg http://en.wikipedia.org/wiki/Economy_of_scale Frank, Robert H. Principles Of Micro Economics. Fourth. New York, NY: McGraw-Hill/Irwin, 2009. 149-203. Print.