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Domino’s Pizza Ad
Domino’s Pizza Delivery Special
This Week Only!
One Large Pizza
$ 9.95
Second Large Pizza
$ 5.00
Explain why this is a good deal for the consumer and Domino’s
Pizza.

One Large Pizza
$ 9.95
How much does it cost to make one large pizza?
What’s the profit?
$4.95
$1.00 + $4.00= $5.00

When I ��…..
You ��…

Second Large Pizza
$ 5.00
How much does it cost to make the second large pizza?
What’s the profit?
$4.15
$ .85 + $ 0= $.85
This is the
marginal
(additional)
cost of
producing one
extra pizza.

Would you rather?......
Sell one pizza for a $4.95 profit
Or
Two pizza’s for a $9.10 profit

For Dominos Pizza- the marginal benefit (profit
from the second pizza) outweighed the marginal
cost (.85) to producing the additional pizza. They
are still very profitable!
For the consumer- the marginal benefit (what
you will do with the extra pizza, out weighs the
marginal cost ($5.00).

Thinking at the Margin
Describe an example of where
you have
thought at the margin?

How many employees should I hire?
Titan Burger has 3 jobs:
1. Cash Register/Drink Prep
2. Fry Engineer
3. Burger Architect

Employees # of Burgers Price Total Revenue
1 8 x 2.00 = $16.00
2 17 x 2.00 = $34.00
3 27 x 2.00 = $54.00
4 38 x 2.00 = $76.00
5 46 x 2.00 = $92.00
6 40 x 2.00 = $80.00
7 30 x 2.00 = $60.00
At the 5th worker, Titan Burger has a point of
diminishing marginal return. Why? Because hiring
the 4th
worker added 11 burgers (marginal product of
labor), and hiring the 5th
worker added only 8 burgers.
Therefore, the output of the 5th
worker was less than the 4th
worker.

Marginal Product of Labor
(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4
2 10
3 17
4 23
5 28
6 31
7 32
8 31

(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4 4
2 10
3 17
4 23
5 28
6 31
7 32
8 31

(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4 4
2 10 6
3 17
4 23
5 28
6 31
7 32
8 31

(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4 4
2 10 6
3 17 7
4 23
5 28
6 31
7 32
8 31
Increasing
Marginal
Return

(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4 4
2 10 6
3 17 7
4 23 6
5 28
6 31
7 32
8 31
Diminishing marginal
return. 3rd
worker adds
7, while adding 4th
worker only adds 6.

(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4 4
2 10 6
3 17 7
4 23 6
5 28 5
6 31
7 32
8 31

(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4 4
2 10 6
3 17 7
4 23 6
5 28 5
6 31 3
7 32
8 31

(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4 4
2 10 6
3 17 7
4 23 6
5 28 5
6 31 3
7 32 1
8 31

(additional)
Labor
(number of workers)
Output
(beanbags per
hour)
Marginal
product of
labor
0 0 ---
1 4 4
2 10 6
3 17 7
4 23 6
5 28 5
6 31 3
7 32 1
8 31 -1

At 4 workers, this firm has a situation of
diminishing marginal return.
As each additional worker is hired, the cost of
production must be taken into consideration.

Labor is the #1 cost of production in the
United States

Fixed cost- a cost that does not change with quantity produced. Same
cost regardless of level of production.
1. Rent
2. Salary Employees
3. Insurance
4. Property Tax

Variable cost- a cost that rises or falls depending on the amount produced.
1. Hourly Pay
2. Raw Materials
3. Electricity/Utilities
4. Advertising
* Fixed costs and variable costs = total cost

How do we calculate total
profit?
Formula TR= (PXQ)
-TC= (FC+VC)
Total Profit
Total Profit for the surf shop?

Total Revenue (P x Q) = $45, 778.50
Variable Costs $ 1,428.00
Fixed Costs $ 2,585.00
Total Revenue (TR) $45,778.50
Total Cost (FC + VC) - $4,013.00
Profit $41,765.50

Cost of Production for Beach Balls
Beach
Balls (per
hour)
Quantity
Fixed
cost
Variable
cost
Total cost
(fixed cost
+ variable
costs)
Marginal
cost
Marginal
revenue
(market price)
Total
revenue
(MRxQ)
Profit
(total
revenue
– total
cost)
0 $36 $0 $36 ---- $24 $0 $-36
1 36 8 44 24 24 -20
2 36 12 48 24 0
3 36 15 51 24 21
4 36 20 56 24 40
5 36 27 63 24 57
6 36 36 72 24 72
7 36 48 84 24 84
8 36 63 99 24 93
9 36 82 118 24 98
10 36 106 142 24 98
11 36 136 172 24 92

Beachballs
(per hour)
Quantity
Fixed
cost
Variable
cost
Total cost
(fixed cost
+ variable
costs)
Marginal
cost
Marginal
revenue
(market price)
Total
revenue
(MRxQ
Profit
(total
revenue
– total
cost)
0 $36 $0 $36 ---- $24 $0 $-36
1 36 8 44 8 24 X 1 = 24 -20
2 36 12 48 24 0
3 36 15 51 24 21
4 36 20 56 24 40
5 36 27 63 24 57
6 36 36 72 24 72
7 36 48 84 24 84
8 36 63 99 24 93
9 36 82 118 24 98
10 36 106 142 24 98
11 36 136 172 24 92

Beachballs
(per hour)
Quantity
Fixed
cost
Variable
cost
Total cost
(fixed cost
+ variable
costs)
Marginal
cost
Marginal
revenue
(market price)
Total
revenue
(MRxQ
Profit
(total
revenue
– total
cost)
0 $36 $0 $36 ---- $24 $0 $-36
1 36 8 44 8 24 24 -20
2 36 12 48 4 24 X 2 = 48 0
3 36 15 51 24 21
4 36 20 56 24 40
5 36 27 63 24 57
6 36 36 72 24 72
7 36 48 84 24 84
8 36 63 99 24 93
9 36 82 118 24 98
10 36 106 142 24 98
11 36 136 172 24 92

Beachballs
(per hour)
Quantity
Fixed
cost
Variable
cost
Total cost
(fixed cost
+ variable
costs)
Marginal
cost
Marginal
revenue
(market price)
Total
revenue
(MRxQ
Profit
(total
revenue
– total
cost)
0 $36 $0 $36 ---- $24 $0 $-36
1 36 8 44 8 24 24 -20
2 36 12 48 4 24 48 0
3 36 15 51 3 24 X 3 = 72 21
4 36 20 56 24 40
5 36 27 63 24 57
6 36 36 72 24 72
7 36 48 84 24 84
8 36 63 99 24 93
9 36 82 118 24 98
10 36 106 142 24 98
11 36 136 172 24 92

Beachballs
(per hour)
Quantity
Fixed
cost
Variable
cost
Total cost
(fixed cost
+ variable
costs)
Marginal
cost
Marginal
revenue
(market price)
Total
revenue
(MRxQ
Profit
(total
revenue
– total
cost)
0 $36 $0 $36 ---- $24 $0 $-36
1 36 8 44 8 24 24 -20
2 36 12 48 4 24 48 0
3 36 15 51 3 24 72 21
4 36 20 56 5 24 96 40
5 36 27 63 7 24 120 57
6 36 36 72 9 24 144 72
7 36 48 84 12 24 168 84
8 36 63 99 15 24 192 93
9 36 82 118 19 24 216 98
10 36 106 142 24 24 240 98
11 36 136 172 30 24 264 92

What is the marginal cost of producing the 6th
beach
ball?
9
What is the marginal cost of producing the 9th
beach
ball?
19
What is the total revenue of producing 4 beach balls
per hour?
96
What quantity of output maximizes profits for this firm?
10 MC=MR
Chart

Beachballs
(per hour)
Quantity
Fixed
cost
Variable
cost
Total cost
(fixed cost
+ variable
costs)
Marginal
cost
Marginal
revenue
(market price)
Total
revenue
(MRxQ
Profit
(total
revenue
– total
cost)
0 $36 $0 $36 ---- $24 $0 $-36
1 36 8 44 8 24 24 -20
2 36 12 48 4 24 48 0
3 36 15 51 3 24 72 21
4 36 20 56 5 24 96 40
5 36 27 63 7 24 120 57
6 36 36 72 9 24 144 72
7 36 48 84 12 24 168 84
8 36 63 99 15 24 192 93
9 36 82 118 19 24 216 98
10 36 106 142 24 24 240 98
11 36 136 172 30 24 264 92
Back

Bringing it All Together
With a partner, come up with your own company. First,
determine the total monthly salary of your management.
Next, determine the cost of your hourly employees. Then
decide on the market price of the merchandise you are
selling. Place these numbers in the appropriate boxes.
Finally, compute the marginal cost, quantity produced,
marginal product of labor, total revenue, and the profit.
Show your work!

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Lesson 12 thinking outside the margin - power point - duke

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Lesson 12 thinking outside the margin - power point - duke