# COST OF PRODUCTION - PowerPoint PPT Presentation

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COST OF PRODUCTION. Microeconomics Made Easy by William Yacovissi Mansfield University William Yacovissi All Rights Reserved. COST OF PRODUCTION. In order to make a product, or offer a service, a company must buy or supply the materials needed to make the product.

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COST OF PRODUCTION

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## COST OF PRODUCTION

by

William Yacovissi

Mansfield University

### COST OFPRODUCTION

• In order to make a product, or offer a service, a company must buy or supply the materials needed to make the product.

• These materials are called inputs, resources, intermediate goods, or factors of production.

### COST OF PRODUCTION

• These things have value because they can be used to produce things people want.

• They also have value because there are not enough of them available to produce everything everybody wants.

### COST OF PRODUCTION

• The process of transforming inputs into a product for sale is called production.

• The money spent to do this is called Costs or Total Cost.

### COST OF PRODUCTION

• The cost per unit is called Average Cost or Average Total Cost and is calculated by Total Cost / Quantity or ATC = TC/Q.

• For example, if it cost \$400 to make 100 units of a product, then the average total cost, ATC = \$400/100 = \$4 per unit.

### COST OF PRODUCTION

• If it cost \$1 per rental in royalties and \$1.50 in cost for overhead in renting the video, what price maximizes this businesses profits.?