Download - Epf2e costs revenues profit and supply
EPF2e. How Costs & Revenue Affect Profit & Supply
Role of Producers & Consumers
in a Market Economy
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Profit is
• an incentive and reward for business owners. • to survive, a business must earn a profit.
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WHAT IS THE DIFFERENCE BETWEEN COST & PRICE?
Essential question:
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Cost and Price• Cost – is the money spent for
the inputs used (e.g. labor, raw materials, transportation, energy) to produce a good or service
• Price – is the amount consumers pay for a good or service
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WHAT IS THE DIFFERENCE BETWEEN REVENUE AND PROFIT?
Essential question:
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Revenue and Profit
• Revenue - is the income generated by the sale of goods and services
Revenue = price x quantity• Profit - is the amount remaining when all
costs are subtracted from all revenuesProfit = Total Revenue – Total Cost
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HOW IS PROFIT CALCULATED?
Essential question:
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Profit Formula
• Profit is the amount remaining when all costs are subtracted from all revenues.
• Profit = Total Revenue – Total Cost
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HOW CAN CHANGES IN THE COSTS OF PRODUCTION AFFECT PROFITS AND THE PRICE OF THE GOODS OR SERVICES PRODUCED?
Essential question:
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HOW DO CHANGES IN COSTS OF PRODUCTION AFFECT THE QUANTITY OF A GOOD OR SERVICE THAT WILL BE PRODUCED?
Essential question:
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When costs of inputs rise:A. profit will fallB. or the price of the good or service will be
increase and sales may decrease• For example, when the cost of lumber goes
up, homebuilder profits will fall or the price of houses will go up
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When costs of inputs decrease:A. Profits can increaseB. Or the price of the good or service can be
decreased and sales may increase• For example, when the costs of lumber goes
up, homebuilder profits will fall or the price of houses will go up
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Supply
• Refers to the quantity of a good or service that will be brought o market at every price at a given time
• When cost of production rises, supply will decrease
• When cost of production decreases, supply will increase
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Summary
• Rising costs tend to decrease profits and lead to higher prices.
• Falling costs tend to increase profits and lead to lower prices.
• A change in the cost of production influences how much will be supplied.