The document discusses the concepts of supply, production, and costs. It defines supply as the quantity of a good or service a firm is willing to provide at different prices. The law of supply states that quantity supplied increases with price. A supply schedule and curve illustrate the relationship between price and quantity supplied. Production functions show the relationship between inputs like labor and outputs. There are stages of increasing, decreasing, and negative marginal product as more inputs are added. The document also defines fixed and variable costs, and different types of costs businesses consider like total, average, and marginal costs.

1. Producing
Goods & Services

2. Supply is the quantities of a product
or service that a firm is willing and
able to make available for sale at all
possible prices.

3. The Law of Supply states that the
quantity of goods supplied will be
greater at a higher price than it
will at a lower price.

4. A supply schedule is a table that shows
the quantities of a good or service that
would be supplied by a firm at different
prices.
A supply curve is a graphic
representation of the quantities
that would be supplied at each
price.

5. $0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
0 5 10 15 20
Price
Quantity Supplied
Supply Curve for Bananas
Price Quantity
$0.99 18
$0.89 16
$0.79 14
$0.69 12
$0.59 10
$0.49 8
$0.39 6
$0.29 4
$0.10 2
$0.09 0

6. A market supply curve shows
the quantities offered at various
prices by all firms that offered
the product for sale in a given
market.

7.  The Quantity Supplied
is the amount that
producers bring to
market at any given
price.
 A Change in Quantity
Supplied is the change
in amount offered for
sale in response to a
change in price.

8. Change in Quantity Supplied
The movement along the curve represents how supply changes
based on price. The higher the price, the more will be produced and
visa versa.

9.  A Change in Supply is
where suppliers offer
different amounts of
products for sale at all
possible prices in the
market.

10. Anything that is viewed as
increasing or decreasing
the cost(s) to supply the
good or service will
change supply. This will
shift the curve to the left or
to the right.
ChangingSupply

11.  Changes in supply can be caused by a number of
factors. The three most common causes are and a
change in the cost of inputs, productivity, and
technological change
1. Costs of Inputs – labor, raw materials, etc.
2. Productivity by working more efficiency the workers
produce more
3. Technology – improving productivity
4. Subsidies – government payments
5. Expectations – future prices will affect production
6. Regulations – rules, standards & requirements
7. Number of Sellers – more sellers offering or
producing the product

12. Labor, raw materials and shipping
costs can increase or decrease
supply.

13. Productivity – when workers decide
to work more efficiently more
products are produced thus
increasing productivity.

14.  New technology tends to shift the supply
curve to the right. A new machine, process,
or chemical, lowers costs thus shifting the
curve to the right.

15.  Government – can affect supply through
increasing or decreasing product costs.
 Taxes paid by the producer adds to costs which
raise prices, thus reducing supply.
 Subsidies received by the producer reduce costs
which lower prices, thus increases supply.
 Regulations add to costs which raise prices, thus
reducing supply.

16.  Expectation about future price changes will
cause the producer to either withhold
products or sell products quickly to take
advantage of a change in price.
 As firms enter or leave the market the
market supply will either increase or
decrease.

17. Price elasticity of supply
measures the responsiveness of
the quantity supplied to changes
in the product’s price.

18.  Measuring Elasticity from the Supply Side
% Change in Quantity Supplied
Price Elasticity =
% Change in Price
1> Inelastic
1< Elastic
1=1 Unitary

19.  Deals with the relationship
between the factors of
production and the output of
goods and services.
 The theory is generally based on
the short run, the ability to
change a single input, for
example labor, versus the long
run which allows for changing
most if not all inputs.

20.  States that in the short run,
output will change as one input
is varied (changed), while
others are held constant.
 The production function
describes the relationship
between changes in output to
different amounts of a single
input while all other inputs are
held constant.

21.  Total Product is all the units of a product
produced in a given period of time.
 Average Product is the number of units of
output produced per unit of input.

22. Marginal Product is the
amount that total
product increases or
decreases as a result of
adding one additional
unit of an input.

23.  Stage 1
 The first workers hired cannot work efficiently because
there are too many resources per worker. As more workers
are added they increase productivity.
 Stage 2
 As more workers are added they add support functions and
may assist but not necessarily produce. Production
increases but at a diminishing rate.
 Stage 3
 As more and more workers are added
production begins to decrease as
workers get in each others way.

24. Diminishing Marginal Product is
the principle that as more of one
input is added to a fixed amount
of other inputs, the marginal
product decreases.

25. 0
20
40
60
80
100
120
140
160
0 5 10 15
TotalProduct
Workers
Production Function
Product
0 0 0 Stage I
1 7 7
2 20 13
3 38 18
4 62 24
5 90 28
6 110 20 Stage 2
7 129 19
8 138 9
9 144 6
10 148 4
11 145 -3 Stage 3
12 135 -10
Number of Total Marginal Regions of
Workers Product Product Production
Increasing Diminishing Negative

26. Production Schedule
Number of
Workers
Total
Product
Marginal
Product*
0 0 0
1 7 7
2 20 13
3 38 18
4 62 24
5 90 28
6 110 20
7 129 19
8 138 9
9 144 6
10 148 4
11 145 –3
12 135 –10
Stages of The Production Function
Stage I
Stage II
Stage III

27.  Increasing = Unit Costs
Decrease
 Decreasing = Unit Costs
Increase
 Constant = Unit Costs
Remains
the Same

28.  Fixed costs cannot be changed in
the short run. These costs are
incurred even if the business is
idle and not operating. Mortgage
or rent payments, machinery,
Insurance etc.
 Fixed costs are also known as
overhead.

29.  Variable costs can be changed at any time.
Labor, raw materials, electricity, inventories,
etc.
 Total Cost of production is the sum of fixed
costs and Variable costs.

30.  Explicit costs are
payments made to
others as a cost of
running a business.
 Opportunity costs are
lost revenues and/or
earnings given up that
one must take into
account when running a
business.

31.  Total Revenue minus Total Cost
equal Profits
 Revenues is the number sold
multiplied by the average
price per unit.
 Total cost is Fixed Costs plus
Variable Costs.
 Profit is the money available
for reinvestment.

32.  Breakeven is the point
where a company’s total
revenue covers its total
costs. All additional
revenues begin to contribute
to profits.

33.  Marginal Revenue is the extra
revenue associated with the
production and sale of one additional
unit of output.
 Marginal Costs is the extra cost
incurred when a business produces
one additional unit of product.
 Marginal Analysis – examines the
extra benefits of a decision compared
to the extra costs.
 The profit-maximizing quantity of
output is reached when MC=MR.