SECTION 3
Making Production Decisions
Essential Question:
 Explain the goal of checking “Productivity;”
define input and output; Compare Total
Product to Marginal Product, Compare fixed
costs to variable costs, and compare total
cost to marginal cost
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SECTION 3
Making Production Decisions
Productivity and producers:
 Productivity is the process of maximizing
the amount of output, while attempting to
minimize the amount of input
 Producers check productivity because:
 They want to see how efficiently resources are
being used.
 They want to ensure that there is as little waste
as possible.
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SECTION 3
Making Production Decisions
Input/Output and the law of
diminishing marginal product:
 Input- any resource (human/natural/capital)
that is added
 Output- the quantity of products produced
By increasing levels of input, output will
increase. Eventually, adding input will result
in lower output. This is the law of
diminishing returns.
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SECTION 3
Making Production Decisions
Total Product vs. Marginal Product:
 Total product- this is the total quantity of
goods or services you produce within a
given period of time
 Marginal Product- this is the change in total
product that occurs when you add additional
input (ex. Workers)
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SECTION 3
Making Production Decisions
DO NOT COPY (P 87)
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SECTION 3
Making Production Decisions
Production Costs:
 Fixed Costs- these are the costs that never
change regardless of the quantity for total
product- example rent for your factory
 Variable costs- these are the costs that
change with the level of output- example
material costs for each item, or # of workers.
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SECTION 3
Making Production Decisions
Production Costs:
 Total Costs- The sum of adding Fixed Costs
and Variable costs together.
 Once you know your total costs, you divide it by
the total product to determine what each unit of
output costs.
 Marginal Costs- the costs that occur to make
one more total product.
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SECTION 3
Making Production Decisions
The big picture:
 As a producer, you can have some control
over costs
 Every time you add a cost, you must analyze
whether that cost will add to your overall
profit or subtract from it
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