Momma Robinson's PizzeriaWhere should

I produce?

get most production @ least cost and most

profit

called Profit Maxization

Factor #of Workers TP

0 01 62 153 264 405 556 717 818 909 9610 95

PART 2: What do the graphs look like?

causeresult

change factor 1 timeoutput

PART 1: law of diminishing

returns

look at app and mpp what happens ??????

PRODUCTION change in output as MARGINAL PHYSICAL PRODUCT

OR MPP

0 0

1 6new level of production is

6- old level mpp is 6

factor total production

MPP

new- old level 2 15 15- 6= 93 26 26-15= 4 40 40-26= 5 556 71

workers production mpp7 81 108 90 99 96 6

10 95 negative -1

Never Produce at this point

PART 2:What do the graphs look like?

x axis= # of workersY axis= app or mpp

now you see the three stagesof production

Increasingdiminishing: define this

production still increasing at a

slower rate negative production:

lessNOT TIME PERIODS BUT WHAT IS HAPPENING TO PRODUCTION

COSTS

Factor Production Fixed

Costs

#of Workers TP MPP FC

0 0 0 351 6 6 352 15 93 26 114 40 145 55 156 71 16 Fixed costs do not change: will find at zero do not add them: remain the same or constant

TP MPP FC

7 81 108 90 99 96 6

10 95 -1

Average Fixed Costsfixed costs as it relates to total production fc divided by

total productionfc/total

productionTP MPP FC AFC

0 0 0 351 6 6 35 35/ 6=5.8 2 15 9 35 35/15=2.33 26 11 35 35/26=1.35

TP MPP FC AFC

4 40 14 35 .8755 55 15 35 .6366 71 16 35 .4937 81 10 35 .4328 90 9 35 .399 96 6 35 .36510 95 -1 35 .368

PART 2: What do the graphs look like?

X AXIS outputY AXIS cost

GRAPH AVERAGE FIXED COST

NOW READY TO LOOK AT THE

WHEN YOU

CHANGE THE FACTOR

Variable Costs vc/totalproduction = avc

#s TP MPP FC AFC VC AVC0 0 0 35 0 01 6 6 35 5.8 40 40/6= 6.72 15 9 35 2.3 40+ 40 = 80

80/15= 5.333 26 11 35 1.35 80 + 40 =120

120 /26 =4.624 40 14 35 0.875 120 +40 = 160

160/40= 4

TP MPP FC AFCVC AVCVariable Costsvc/total production

5 55 15 35 .636 200 3.6366 71 16 35 .493 240 3.387 81 10 35 .432 280 3.468 90 9 35 .39 320 3.569 96 6 35 .365 360 3.7510 95 -1 35 .368 400 4.21

PART 2: What does this graph look like? avc

NOW WE WILL LOOK AT TOTAL COSTS

TC= FC+ VC

• AND THEN TC/ TP

 average total costfc plus vc/

production

tc/tp

# TP MPPFC AFC VC AVC TC ATC

0 0 0 35 ----- 0 0 35 ----

1 6 6 35 5.8 40 6.7 35+40=75

75/6=12.52 15 9 35 2.3 80 5.33

35 +80=115 115/15=7.66

3 26 11 35 1.35 120 4.62

35+120=155 155/26=5.97

TP MPPFC AFC VC AVC TC ATC

4 40 14 35 .875 160 4 195 4.875

5 55 15 35 .636 200 3.636 2354.27

6 71 16 35 .493 240 3.38 275 3.873

TP MPP FC AFC VC AVC TC ATC

7 81 10 35 .432 280 3.46315 3.89

**note it is now rising--diminishing returns

8 90 9 35 .39 320 3.56 355 3.95

9 96 6 35 .365 360 3.75 395

4.11510 95 -1 35 .368 400 4.21 435

4.578

PART 2: What do the graphs look

like? TCATC

NOW: WHAT IS THE COST OF PRODUCING ONE MORE UNIT

change cost /change in production

vc/mpp go to mpp column and divide that into vc

Marginal Costs of producingone more

TP MPP FC AFC VC AVC TC ATCMC

0 0 0 35 ----- 0 0 35 ---------

1 6 6 35 5.8 40 6.7 75 12.540/6= 6.67

2 15 9 35 2.3 80 5.33115 7.6640/9=4.44

3 26 11 35 1.35120 4.62155 5.9740/11=3.64

TP MPP FC AFC VC AVC TC ATCMC

4 40 14 35 .875 160 4 195 4.875

2.865 55 15 35 .636 200 3.636 2354.27

2.666 71 16 35 .493 240 3.38 275 3.873

2.57 81 10 35 .432 280 3.46 315 3.89

48 90 9 35 .39 320 3.56 355 3.95

4.44 9 96 6 35 .365 360 3.75 3954.115

6.610 95 -1 35 .368 400 4.21 435 4.578

WHAT ABOUT REVENUE AND PROFIT

Total revenue= Price X quantity sold

how can you figure this out

Marginal Revenue

Change in revenue

How could we figure this??

Mpp/Change in revenue

what would be the easy way ???

Profit

• Difference between total revenue and total costs

• Remember we want Max Profit

• What equation expresses where Max Profit

is located

Max Profit output is always found at MR=MC