SECTION 4: Costs of Production



Costs of Production Notes

Learning Outcome 4

|Explicit Costs and Implicit Costs |

We looked at opportunity cost in Learning Outcome 1. The opportunity cost is the next best alternative foregone (given up) in making an economic decision.

Economists also include opportunity costs of the factors of production because when a factor of production is used for one thing it can’t be used for something else.

Costs that require the firm to pay out money, such as, wages, salaries, utilities (light, gas and water), advertising etc., are called EXPLICIT COSTS.

In general, opportunity costs, which are also called IMPLICIT COSTS, do not require the firm to pay out cash.

Firms must look at opportunity costs. We need to look at the three following types of opportunity cost in setting up a business:

Cost of an Entrepreneur’s ability as an Opportunity Cost (foregone income)

Assume Sally graduated from College with a diploma in IT. She can get a job working as a programmer in a company making $25,000 a year. Instead she decides to open a designer T-shirt factory and gives up the $25,000 per year which is her opportunity cost or implicit cost of her designer T-Shirt factory.

Sally’s foregone income/ implicit cost is $_______ per year.

An economist will include the $25,000 per year in foregone income (opportunity costs or implicit cost) as part of Sally’s costs of doing business (total cost).

1) Cost of Financial Capital as an Opportunity Cost (foregone interest)

Assume Sally uses $100,000 from her personal savings to set up her designer T-shirt factory. If Sally had left the money in the savings account she would have earned 3% interest; therefore, she would have earned ($100,000 X .03 =) $3,000 in interest per year on her $100,000.

Sally’s foregone interest/ implicit cost is $________ per year.

An economist will include this foregone $3,000 as an implicit cost and as part of her cost of production (total cost).

2) Cost of Land as an Opportunity Cost (foregone rent)

Assume Sally could have used the land for either building a designer T-shirt factory or she could have rented the land out for a parking lot at $2,000 per month or $24,000 per year.

Sally’s foregone rent/implicit cost is $_______ per year.

An economist will include this foregone $2,000 per month as an implicit cost and as part of her cost of production.

Total Implicit Costs for Sally’s Designer T-Shirt factory

Therefore, Sally’s total implicit cost of opening her Designer T-shirt factory is:

$______________ + $__________ + $_________ = $_________

An economist will include the total implicit cost as part of Sally’s total cost.

|Economic Costs versus Accounting Costs |

Economists and accountants differ in how they calculate costs. Economists use the concept of opportunity cost when calculating production costs so they include implicit costs as part of the costs of production. Therefore when calculating total costs, economists take into consideration BOTH explicit, i.e., foregone, rent, income, interest, AND implicit costs, i.e., wages, salaries, utilities, advertising costs

Economic Costs = Explicit + Implicit costs

Economic Costs = (wages + salaries + utilities + advertising expenses, etc.) + (foregone rent, foregone income, foregone interest, etc.)

Accountants track the flow of money in and out of a firm; therefore, they only include explicit costs, i.e., wages, salaries, utilities, advertising costs, when they calculate costs of production.

Accounting Costs = Explicit costs

Accounting Costs = (wages + salaries + utilities + advertising expenses, etc.)

|Economic Profit versus Accounting Profit | |

Since accountants and economists have different measures for costs, they also calculate profits differently.

Economists calculate profit as: Total Revenue – (explicit + implicit costs) = profit

Accountants calculate profit as: Total Revenue – explicit costs = profit

Since implicit costs aren’t included, accounting profit is larger than economic profit.

ECONOMISTS look at THREE types of profit:

Normal profit (Economic profit is Zero) is the MINIMUM level of profit required to keep an entrepreneur in his present business. Normal profit includes opportunity costs.

Economic profit (Economic profit > Zero) is the amount over and above an entrepreneur’s normal profit.

Economic loss (Economic profit < Zero) is the amount less than an entrepreneur’s normal profit.

ECONOMIC PROFIT VERSUS ACCOUNTING PROFIT

Accounting Formulas:

TC = Explicit costs Therefore: TR – Explicit Costs = Profit/loss/Break-even

Economics Formula:

TC = Explicit Costs + Implicit Costs Therefore:

TR – (Explicit Costs + Implicit Costs) = Normal Profit/Normal loss/Normal Profit

Let’s look at numerical examples of economic profit and accounting profit. Assume a firm has explicit costs of $1,500 and implicit costs of $3,000. Now fill in the table.

| |SITUATION 1: |SITUATION 2: |SITUATION 3: Assume Total Revenue is |

| | | |$2,500 |

| |Assume Total Revenue is $4,500. |Assume Total Revenue is $6,000 | |

| |ECONOMICS |ECONOMICS |ECONOMICS |

| |  |  |  |

| |$4,500 – ($1,500 + $3,000) = 0 |  |  |

| | |  |  |

| |Normal PROFIT |Economic ________ |Economic _______ |

| |  |  |  |

| |ACCOUNTING |ACCOUNTING |ACCOUNTING |

| |  |  |  |

| |$4,500 - $1,500 = $3,000 |  |  |

| |  |  |  |

| |ACCTG. PROFIT |ACCTG. _________ |ACCTG. ________ |

|Short Run versus Long Run |

Short Run (SR)

In economics, the Short run is a period of time in which at least one factor of production is FIXED and is a fixed cost. Therefore in the SR, we can only increase output by adding more of a variable factor (e.g. labor) to a fixed factor (e.g. capital).

Long Run (LR)

In economics, the Long run is defined as a period of time in which ALL factors of production are VARIABLE and hence all costs are variable. Therefore in the LR, we can increase output by increasing ALL factors of production. For example, we can build new factories and buy more capital.

|Short Run Cost of Production |

In this section we will first define some terms, then we will evaluate a hypothetical example and plot the data from the example to illustrate cost curves.

Fixed cost- Do Not change with the level of output; i.e., rent, interest payments

Variable cost – Change with the level of output; i.e., raw materials, hourly wages

Formulas:

Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC)

Average Fixed Cost (AFC) = TFC/Q

Average Variable Cost (AVC) = TVC/Q

Average Total Cost (ATC) = TC/Q

Marginal Cost (MC) = ∆TC/∆Q OR Marginal Cost (MC) = ∆VC/∆Q Note: We can use either of the two following formulas and get the same answer for MC:

MC =∆TC/∆Q OR MC =∆VC/∆Q

This is because FC do NOT change and VC change so the ∆TC = ∆VC

|Short Run Cost of Production |

Case Study: The ‘Antique Car’ Company

Saad Hakim used to enjoy making electrical toys when he was a teenager. His friends and relatives were impressed with the quality of his work and asked him to make some for them to give as gifts. This positive feedback from his friends and relatives gave Saad an idea that he pursued while in college.

Saad had some money is his savings account and both his parents and his bank agreed to lend him some more funds so that he could start up his own business under the name of ‘Antique Cars”. Saad agreed to pay $20.00 to the bank per week.

Saad rented a small office to use as a factory. The rent on the office is $250.00 per week. He also rents two welding machines at a cost of $45.00 per week. Saad pays $15.00 per week on utilities. Saad hired his two brothers and agreed to pay them $20.00 for every car they finished. The raw materials required to produce each car costs $5.00.

Saad’s antique toy cars have become very popular and his orders have increased. Saad mostly depends on his regular customers, which are specialty shops for regular orders for his antique cars. The price of each antique car is $40.00 each. Saad keeps any profit that is left after he has paid his costs from the revenue he earns from selling the cars.

Saad is operating in the short run therefore to increase output (number of cars produced); he can only increase the number of workers. Capital (machines and the factory) remains fixed.

The costs of ‘Antique Cars’

In operating his toy car business, Saad has a number of things he has to pay for. Some things have to be paid for each and every week no matter how many cars Saad makes and sells. These are his fixed costs and they do NOT change with the number of cars produced. That is he must pay these costs even if he produces nothing.

However, there are some things that vary with the number of cars produced. These are his variable costs. The more Saad produces the more he needs of these things and the less he produces the less of these things he needs. From the case study, see if you can identify Saad’s fixed and variable costs and put them in the table below.

|Fixed costs per week Variable costs per antique car |

| |

|______________________ $ _________ ___________ $ _______ |

| |

|_______________________ $ _______ ____________ $ _______ |

| |

|_______________________ $ _________ ____________ $ _____ |

| |

|_______________________ $ _________ |

| |

|Total Fixed Costs $ _________ Total Variable Costs per car $ _____ |

Answer the following questions based on the Antique Car Case Study.

1. Write down a definition of fixed costs and give two examples. __________________________________________________

; ___________ and ______________

2. If Saad produces 0 cars in a week, how much would his fixed costs be that week? _______________

3. If Saad produces 50 cars in a week, how much would his fixed costs be that week? _________________

4. Write down a definition of variable costs and give two examples. ____________________________________________;

___________ and ____________

5. If Saad produced 0 cars, how much would his variable costs be? _________________

6. If Saad produced 50 cars, how much would his variable costs be? __________________

7. The total cost of producing a good or service is found by adding together the fixed costs (FC) and variable costs (VC). Total cost and variable cost are cumulative.

Total cost (TC) = FC + VC

a. If Saad produces 0 cars in a week, what would his total cost be?

b. If Saad produces 50 cars in a week, what would his total cost be?

Example: Use the formulas to fill in the missing cost information in the following table.

|Short-Run Cost Relationships |

|Q |TC |TFC |TVC |ATC= TC/Q |

|0 | |0 |-50 |L |

| |50 | | | |

|10 |60 |20 |-40 |Loss |

|20 |70 |40 |-30 |L |

|30 |80 |60 |-20 |L |

|40 |90 |80 |-10 |L |

|50 |100 |100 |0 |BE |

|60 |110 |120 |10 |P |

|70 |120 |140 |20 |P |

|80 |130 |160 |30 |Profit |

|90 |140 |180 |40 |P |

|100 |150 |200 |50 |P |

|110 |160 |220 |60 |P |

|120 |170 |240 |70 |P |

|130 |180 |260 |80 |P |

|140 |190 |280 |90 |P |

|150 |200 |300 |100 |Profit |

➢ How much is Fixed Cost? ________

➢ How much is Variable Cost when the business produces: 0 units? ___$0_ 20 units? __$20___b/c FC + VC = TC so $50 + ??? = $70

Example: Analyzing a Break-Even Graph

[pic]

Note: It is not necessary to plot the variable cost curve for a Break-even chart.

Questions: Use the graph above to complete the following:

1) The break-even level of sales is ___1000____ because TR = __TC___

2) When the firm produces zero, TC = ___$20,000___. TC = FC when a firm produces zero.

3) Shade in the areas for profit and loss on your graph.

4) What would happen if the firm considered charging a higher price? A lower price?

Average Revenue and Marginal Revenue

Average revenue is the revenue per unit sold. Average revenue (AR) = TR/Q

Marginal revenue is the extra revenue earned for each additional unit sold.

Marginal revenue (MR) = ∆TR/ ∆Q

Fill in the AR and MR column in the following table:

|Output/ |Total |Average |Marginal |

|Sales/ |Revenue (TR) |Revenue (AR) |Revenue |

|Quantity (Q) |= $2 X Q |= TR/Q |(MR) |

| | | |= ∆TR/ ∆Q |

| 0 |0 | ---- | -------- |

|10 |20 |2 |2 |

|20 |40 |2 |2 |

|30 |60 |2 |2 |

|40 |80 |2 |2 |

|50 |100 |2 |2 |

|60 |120 |2 |2 |

|70 |140 |2 |2 |

|80 |160 |2 |2 |

|90 |180 |2 |2 |

|100 |200 |2 |2 |

|110 |220 |2 |2 |

|120 |240 |2 |2 |

|130 |260 | |2 |

|140 |280 |2 | |

|150 |300 |2 |2 |

Questions:

➢ You will notice that Average Revenue is equal to the price ($2). Why? In this example, Price _______ (stays the same/decreases/ increases) even when the business sells more units (perfect competition) so Average Revenue = Price.

➢ You will notice that Marginal Revenue (MR) is equal to the price($2). Why? In this example, Price _______ (stays the same/decreases/ increases) even when the business sells more units (perfect competition) so Marginal Revenue = Price.

P = MR = AR

➢ Note: When we look at Market structures we will see that this firm is operating in a perfect (pure) competition market.

SUMMARY OF SHORT RUN COSTS; REVENUE AND PROFIT FORMULAS

TERM SYMBOL EQUATION DEFINITION

Variable Costs VC VC=TC-FC Costs that vary with

the level of output

e.g. Wages and raw

materials

Fixed costs FC FC=TC-VC Costs that do NOT change with the

level of

production.e.g Rent

Total Cost TC TC=FC+VC The total amount

spent on producing

a given output.

Average Total AC AC=TC/Q Per unit costs/

Costs or or amount

ATC AC=AFC+AVC spent on producing

EACH unit.

Average Variable AVC AVC=VC/Q Per unit VC

Average Fixed AFC AFC=FC/Q Per unit fixed costs

Costs

Marginal cost MC MC= (TC/ ( Q The amount spent

or on producing

MC= (VC/ (Q ONE EXTRA unit.

Total Revenue TR TR = P X Q Total amount of

Money received

from selling a good or service

Average Revenue AR AR = TR/Q Per unit revenue

received

from selling each unit.

Marginal Reveune MR MR= (TR/ ( Q Amount received

when one

EXTRA unit is sold.

NOTES: Only Variable Costs affect Marginal Costs.

FC, VC & TC are the SHORT RUN classifications of costs because FC only exist in the SR.

|Short Run Product Curves |

Case Study: Farmer Ahmed’s Orchard (Review the Short run and Long run on page 4)

Farmer Ahmed has a large orchard full of orange trees. At the end of the summer, the trees were full of ripe oranges that were ready to be picked. Farmer Ahmed hired a young orange-picker named Nader who could pick 110 oranges per day. Farmer Ahmed gave Nader a ladder that he could use to help him reach the oranges on the highest branches.

Farmer Ahmed didn’t think that Nader would be able to pick all the oranges by himself before the cold weather begins so he decided to hire more orange pickers. Farmer Ahmed hired Saeed to help Nader pick the oranges. Nader and Saeed climbed the ladder together and Nader picked oranges from the highest branches, while Saeed picked oranges from the lowest branches. Together they could pick 176 oranges per day. On the average they could pick 88 kilos of oranges per day, which is called their average product. With both Nader and Saeed on the ladder, the ladder was not very steady so their orange picking had slowed down somewhat.

By himself, Nader could pick 110 kilos of oranges per day. With Saeed helping him pick oranges, the total kilos of oranges picked per day had increased to 176 oranges. By hiring Saeed total output or total product had increased by 66 oranges per day. This extra 66 kilos of oranges is called Saeed’s marginal output or marginal product. (Note: Marginal always means additional or extra in Economics.)

A few weeks later, Farmer Ahmed was still concerned that his ripe oranges would not be picked before the cold weather set in, so he hired Munir to help Nader and Saeed pick oranges. Nader, Saeed and Munir climbed the ladder together. All three workers could pick 186 kilos of oranges per day. This is an average product of 62 kilos of oranges per day. With the three of them on the ladder, the ladder had started to shake quite a lot, which made it more difficult for them to pick the oranges.

Picking together, Nader and Saeed could pick 176 kilos of oranges per day. Therefore hiring Munir increased output by only 10 kilos per day; Munir’s marginal product (extra output) is 10 kilos of oranges per day.

A few weeks later, Farmer Ahmed decided to hire a fourth orange picker, Ahmed. Now, Nader, Saeed, Munir and Ahmed climbed the ladder together. Since the ladder had now become very over-crowded, it was dangerous and difficult enough for everyone to hold onto the ladder let alone pick oranges! Obviously, hiring Ahmed, the fourth orange picker, caused total product to fall from 186 kilos of oranges per day to only 76 kilos per day. Now, the average product was only 19 kilos per day and Ahmed’s marginal product (extra output) was a negative number, - 110 kilos per day!

[pic]

The following table shows total, average and marginal products of the orange pickers:

|Units of Labor |Oranges per day |

| |Total product |Average product |Marginal product = |

| | |= TP/Q of input |( TP / ( Q of input |

|0 |0 |0 |0 |

|1 (Nader) |110 |110 |110 |

|2 (Saeed) |176 |88 |66 |

|3 (Munir) |186 |62 |10 |

|4 (Ahmed) |76 |19 |-110 |

THE SHORT-RUN PRODUCT FORMULAS

Total (Physical) Product (TP or TPP) is the total quantity, or total output, of a particular good or service produced. The Total Product curve is called the Production Function.

Marginal (Physical) Product (MP or MPP) is the change in total product associated with each new unit of input (e.g. labor). That is the extra output produced by one more unit of input (e.g. labor) holding at least one either factor of production constant.

MP = ( TP / ( Q of input (e.g. labor)

Average (Physical) Product (AP or APP), is output per unit of input (e.g. labor). If labor is the input, AP is also called Labor Productivity.

AP = TP/Q of input (e.g. labor)

Exercise: Diminishing marginal returns

Below is a table of figures showing the total product of a number of workers in a factory manufacturing shoes using a fixed number of machines (one machine/capital) as shown in the first column below.

|  |  |Pairs of Shoes per week | | |

|Amount of |Number of |Total |Avg |MP |Returns |

|Capital |workers |Product |Product | | |

|1 |0 |0 |0.00 |0 | |

|1 |1 |5 |5.00 |5 |_______ |

| | | | | |returns |

|1 |2 |12 | | | |

|1 |3 |18 |6.00 |6 |  |

|1 |6 |30 |5.00 |3 |  |

|1 |10 |29 | |-2 | |

[pic]



Exercises:

➢ Fill in the columns for average and marginal product.

➢ Identify the following number of workers:

• Number of workers are _______ when MP = AP.

• Number of workers are ________ when TP is at a maximum.

• Number of workers are ________ when MP becomes negative.

• TP is at a maximum when MP=_______. This occurs with the addition of the _____ unit of labor.

➢ Figure 1: The Production Function (top graph) and the MP and AP curves

[pic]

➢ An analogy with your extra grades and your average grade will help you remember the important relationship that always exists between any marginal and average!!

➢ When your marginal (extra) grade is above your average grade, your average grade _______ (increase/decrease/stays the same).

➢ When your marginal (extra) grade is below your average grade, your average grade _______ (increase/decrease/stays the same).

➢ When your marginal (extra) grade is equal to your average grade, your average grade _______(increase/decrease/stays the same).

➢ Now use the above grade analogy and the graph above to help you learn the following very important relationships between Marginal Product and Average Product:

➢ When MP ( AP ( AP is ________( increasing/decreasing/at maximum/at minimum)

➢ When MP ( AP ( AP is _______ ( increasing/decreasing/ at maximum/at minimum)

➢ When MP = AP ( AP is _________( increasing/decreasing/ at maximum/at minimum)

➢ Look at your table; from 1 unit of labor to _______ units of labor, MP is increasing. This is because two pairs of hands working together can be better than one pair of hands. Therefore, at first there are increasing returns (Stage 1). This can be seen in your graphs by the upward slope of the average and marginal product curves.

➢ Look at your table; from ________ to _______ units of labor, MP is decreasing (Stage II). This occurs because if there are too many workers the capital goods become shared among too many pairs of hands.

➢ The law of diminishing returns begins when the company hires the ______ worker and MP starts to decrease which can be seen from your graphs as the downward slope of the average and marginal product curves.

➢ Look at your table, when the firm hires the _____unit of labor, MP is negative (Stage III). This occurs because if we continue adding workers our TP will actually start to decrease and marginal product will become negative. This is called negative returns, which can be seen, from your graphs as the downward slope of the total product curves and the negative section of the marginal product curve.

Questions: Look at your table and graph above.

➢ How many units of labor must the firm employ if it wishes to maximize total product (produce the greatest total output) each month? _________

➢ The ninth worker employed will cause the total product to fall below its maximum, as the capital equipment in the firm becomes shared among too much labor. What happens to the marginal product curve at this point on your graph? ____________________

➢ Is this firm operating in the long run or short run? (Hint: Look at the factors of production the firm is using.) _________________________________________

➢ In the long run, how could the entrepreneur who runs the shoe factory try to overcome diminishing returns when he employs more and more workers? _________________________________________________________________

➢ Diminishing Marginal Returns: In the short run, after some point, additions of the variable input, labor, to the fixed input, capital will cause total product to increase at a decreasing rate; hence Marginal Product will decrease. This occurs because the variable factor, labor, has less of the fixed input, capital, to work with; therefore, labor starts to get in each other’s way. At this point, we have decreasing marginal returns and this concept is called the LAW OF DIMINISHING MARGINAL RETURNS.

➢ Diminishing marginal returns only occurs in the ___________ (long run/ short run) because only in the _________ (long run/short run) is there at least one fixed factor of production. Remember that in the long run, all factors of production are variable (all costs are variable).

Review Exercises on Costs of Production

1) Sahar owns her own business, Emirates Video, and has been selling only television sets for one year. Total revenues for the year are Dhs 300,000. Sahar paid Dhs. 75,000 for labor and Dhs. 80,000 in cash for television sets. If Sahar were to leave her business, she could easily get a job as a sales manager at Jumbo Video and could earn a salary of Dhs. 42,000 annually. To finance her business, Sahar invested Dhs 150,000 of her own money which could have earned 10% at the Emirates Bank.

a) Calculate the value of the explicit costs.

b) Calculate the value of the implicit costs.

c) Explain what is the difference between explicit and implicit costs?

d) Should Sahar stay in business? Why?

e) If the bank is offering 15 % on savings accounts, should she stay in business? Why?

2) Take the on-line quiz on Costs of Production (Theory of the Firm)



3) Below is a set of possible production levels of a new fashion magazine to be sold at $5 each. Assume the cost of renting machines and renting a factory is $2,000 per month. The cost of raw materials and wages to produce each magazine is estimated to be $1.00.

|Fashion Magazines |Fixed |Variable |Total |Total |Profit |

|per month |costs |costs |costs |revenue |loss |

|(Q) |($) |($) |($) |($) |($) |

| | | | | | |

| 0 | | | | | |

|1000 | | | | | |

|2000 | | | | | |

|3000 | | | | | |

|4000 | | | | | |

|5000 | | | | | |

|6000 | | | | | |

|7000 | | | | | |

|8000 | | | | | |

➢ What level of output is the break-even point of production?

➢ Plot and label the following curves on your Break-even graph with ‘magazines per month’ on the x-axis and cost and revenue ($) on the y- axis.

o Fixed costs.

o Variable costs

o Total costs

o Total revenue

o Label the areas that represent profit, loss and break-even on your graph.

Exercise: Applying your Knowledge and Understanding

Read the following article and apply the concepts you have learned.

UAE auto industry seen contracting by 8.5% in 2009

[pic][pic][pic]by [pic]Andy Sambidge [pic]This email address is being protected from spam bots, you need Javascript enabled to view it [pic] on Monday, 10 August 2009

[pic]

SLOWING DOWN: The UAE's car sales sector is seen contracting by more than eight percent in 2009, according to a new report. (Getty Images)

The car sales industry in the UAE is facing a tough 2009 and is predicted to see negative growth of 8.5 percent, according to a new report published on Monday.

Business Monitor International (BMI) has revised its forecast for the country’s auto industry from 2.9 percent growth to a contraction of 8.5 percent as dealers continue to feel the impact of the global economic slowdown.

In its new report, BMI said the worldwide downturn was “likely to bring an end to the robust growth the UAE has registered in recent years”, adding that it was likely that some consolidation would take place within dealerships.

Related: Car giant offers UAE's first free redundancy cover

Story continues below ↓

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[pic][pic]However it added that there were “encouraging signs in the market” that suggest a recovery may not be far off.

Dealers in the UAE are facing unsold stock and dwindling profit margins as consumers pull back, BMI said, adding that it saw 2009 sales of around 324,900 units.

“However, even in the current global economic scenario, manufacturers continue to focus their attention on the Middle East, which has been one of the more resilient markets for autos when compared with North America and Europe,” the report added.

While a sales contraction is on the cards this year, BMI believes that the market will rebound in 2010. “We are encouraged by signs that the credit situation is improving. In addition to offering the opportunity to lease vehicles, dealers are teaming up with banks to provide autos loans to buyers who wouldn’t normally be able to qualify for a loan,” the report said.

It added that while new car sales may be slowing, the UAE remained a robust market for luxury sales although sales in the segment have not been immune from the downturn.

BMI said it remained optimistic over the forecast period, which concludes at the end of 2013. “We expect the recovery to begin next year and accelerate as growth picks up. Sales should reach 422,145 units, an increase of 18.9 percent over 2008 levels.”

The research company added that it expects to see some consolidation within dealerships, with smaller firms at risk of going out of business and larger dealerships taking on their sole distribution rights.

The text above is typical of the sort of article available in newspapers and magazines such as 'The Economist', 'Newsweek' and so on. You will gain a great deal from reading all manner of relevant articles in your studies - but the secret is to read it like an economist!!

Exercise: When reading the text

1. Look up any new vocabulary words.

2. Some of the concepts you should apply include:

a. Cost of Production

b. Break-even analysis

-----------------------

Average Total Cost

Marginal Cost

Total Fixed cost

Total Variable Cost

Total Cost

Average Variable Cost

Average Fixed Cost

Total revenue

Total Cost

st

Fixed Cost

TP

................
................

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