Step

Total Output (number of

shirts)Fixed Cost

Variable Cost Total Cost

Marginal Cost

0 0 22 0 22 n/a1 1 22 9 31 9

2 2 22 17 39 83 3 22 24 46 7

4 4 22 30 52 6

5 5 22 37 59 7

6 6 22 46 68 9

7 7 22 57 79 11

8 8 22 70 94 15

9 9 22 89 111 16

Marginal Revenue

Total Revenue

Profit (Total Revenue - total cost)

n/a 0 -2215 15 -16

15 30 -915 45 -1

15 60 8

15 75 16

15 90 22

15 105 26

15 120 26

15 135 24

Production Cost Graph: A Shirt Factory

Supply Schedule: Tony's Pizza Palace

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$0.50

$1.00

$1.50

$2.00

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$3.00

$3.50

0 100 200 300 400

Output (slices per day): (Quantity)

Pri

ce

Part F: Section 5.3 Outline: Read pages 116-120)

““Changes in Changes in Supply”Supply”

A. Input Costs: Costs needed to produce a good: raw materials

machinery, and labor

Increased Increased prices of inputs prices of inputs will cause a fall will cause a fall in supply and in supply and a a shift to the shift to the leftleft

Supply Schedule: Tony's Pizza Palace

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

0 100 200 300 400

Output (slices per day)

Pric

e

Decreased Decreased prices of prices of inputs will inputs will cause a rise cause a rise in supply in supply and and a a shift shift to the rightto the right

Supply Schedule: Tony's Pizza Palace

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$1.50

$2.00

$2.50

$3.00

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0 100 200 300 400

Output (slices per day)

Pric

e

1. Effects of Rising Cost: supply curve shifts to the

left

(1) IncreasedPrices in Outputs

(1) IncreasedPrices in Outputs

(3)Producers decrease supply so that price equals

marginal cost

(1) IncreasedPrices in

Inputs

(2)Increased Marginal

Cost

Technology: Technology: Advances in Advances in technology technology lowers lowers costs costs and and increasesincreases supplysupply

B. Government’s Influence on Supply

1 1 Subsides:Subsides: government government pays a pays a producer a producer a set subsidy set subsidy for each unit for each unit of a good of a good producedproduced

a.a. Why subsidize?Why subsidize?

(1)(1) To protect the food supply in To protect the food supply in case imports are cut offcase imports are cut off

(2)(2) To protect a lifestyle To protect a lifestyle (3)(3) To protect growing industries To protect growing industries

and struggling industriesand struggling industries

b. By lowering marginal cost at b. By lowering marginal cost at

all levels of output, subsidies all levels of output, subsidies allow the supply of a good to allow the supply of a good to increase. The supply curve increase. The supply curve shifts to the right. shifts to the right.

2. Taxes: Excise taxes

a. Excise a. Excise tax:tax: Increases Increases production production costs by costs by adding an adding an extra cost for extra cost for each unit soldeach unit sold

b. Why apply an excise tax?b. Why apply an excise tax?

(1) discourage harmful goods: (1) discourage harmful goods: cigarettes, alcohol, and high cigarettes, alcohol, and high pollutant gasolinepollutant gasoline

c. Causes supply levels to c. Causes supply levels to decrease decrease and the supply curve and the supply curve to to shift to the left.shift to the left.

3. Regulation: often has the effect of raising cost

a.a. Example of Example of regulation: regulation: pollution control: pollution control: producers are producers are required to install required to install technology that technology that reduces pollutionreduces pollution

b.b. The supply curve The supply curve shifts to the leftshifts to the left

C. Supply in the Global Economy 1. Imports may cause an increase in 1. Imports may cause an increase in

supply when input costs decreasesupply when input costs decrease

a. example: The U.S. imports a. example: The U.S. imports telephones telephones from Japan: a Japanese from Japan: a Japanese technological technological innovation decreases innovation decreases the cost of producing the cost of producing telephones telephones

an increase supply of an increase supply of telephones telephones in the U.S occurs in the U.S occurs

2. 2. Import restrictions:Import restrictions: cause a decrease in supplycause a decrease in supply

a. example: quota systems and tariffs: a. example: quota systems and tariffs: limits imports in a countrylimits imports in a countryb. quota systems: when governments b. quota systems: when governments limit the amount of imports limit the amount of imports

from from another countryanother countryc. tariffs: taxes on imported goodsc. tariffs: taxes on imported goods

Quota systems: governments Quota systems: governments allowing only a certain amount of allowing only a certain amount of goods to enter a countrygoods to enter a country

Tariffs: tax on imported goods Tariffs: tax on imported goods

D. Other influences on Supply1. 1. Future expectationsFuture expectations

a. If a producer believes that the a. If a producer believes that the price of a product will increase in price of a product will increase in the future what will a producer do?the future what will a producer do?

(1)The producer will decrease supply until the price increases..

b. If a producer believes that the price b. If a producer believes that the price

of a product will decrease in the near of a product will decrease in the near future what will a producer do?future what will a producer do?

(1) (1) The producer will immediately The producer will immediately

place more goods on the market.place more goods on the market.

2. Inflation: When 2. Inflation: When

inflation occurs, inflation occurs, producers decrease producers decrease their supply so they their supply so they can gain more money can gain more money in the futurein the future

a. example: a. example: The South during The South during

The The Civil WarCivil Warb. b. inflation:inflation: a a

general general rise in rise in pricesprices

3. 3. The Number of The Number of suppliers :suppliers : More suppliers More suppliers will cause an will cause an increaseincrease in in supply and fewer suppliers supply and fewer suppliers will cause a will cause a decreasedecrease in in supply supply

Complete Part G in your Complete Part G in your Chapter 5 PacketChapter 5 Packet

The Wal-Mart Telxon

Eminent domain, local merchants and Wal-mart