Costs of Production

and Changes in Supply

Labor and Output

Marginal product of labor- change in output from hiring one more worker.

Increasing Marginal Returns- where workers add more to output than previous worker.

Diminishing Marginal Returns- point where adding more workers increases total output but at a decreasing rate.

Negative Marginal Returns- point where adding another worker DECREASES output.

Costs

Fixed Cost- Cost that doesn’t change, no matter how much of a good is producedRent, machine repairs.

Variable Cost- Costs that rise or fall depending on the quantity produced. Raw materials, labor

TOTAL COST= Fixed costs + Variable costs

You want to produce where Marginal Revenue=Marginal Cost.

Profit= total revenue-total cost.

SHIFTS IN SUPPLY

Input costs

Government’s influence

Supply in Global Economy

Others

Input Costs

CostsAs costs go up, supply shifts leftAs costs go down, supply shifts

right

TechnologyAdvances in technology, supply

shifts rightDecreases in technology, supply

shifts left

Governments influence

Subsidy- government payment that supports a business or market.FARM SUBSIDIESIncrease- supply shifts rightDecrease- supply shifts left

Excise tax- tax on production or sale of a good.Increase costs- Like cigarettes,

alcohol.Increase- supply shifts leftDecrease- supply shifts right.

Governments influence

Regulation- government intervention in a market that affects the price, quantity, or quality of a good. Increase in regulation- supply shifts leftDecrease in regulation- supply shifts

right.

Supply in Global Economy

Import restrictions- Import restrictions- supply shifts

leftNone- Supply shifts right.

Others!!

Future expectations of price- Expect higher prices in future-

current supply shift leftExpect lower prices in future-

current supply shifts right.

Number of suppliers-MORE- supply shifts rightLESS- supply shifts left.