Week 9 — Production & Costs
Why this matters
A bakery owner weighs one more hire, and a furniture maker weighs one more order; both need what the next unit costs.
In plain language
This week you step inside a business and look at its numbers. You will see how a bakery's output grows as it adds workers to one small kitchen, and why each extra worker eventually adds less than the one before, a pattern called diminishing marginal returns (each added worker contributing less once the fixed space gets crowded). You will also take a chair workshop's costs apart and find the marginal cost (what one more chair adds to the bill) and the average cost (the bill divided by the number of chairs). Last, you will learn why a business that shows a profit on its books can still leave its owner behind, once you count the implicit costs (the earnings the owner gives up to run it).
- Already covered: Week 1 taught opportunity cost; Week 8 added thinking at the margin.
- This week: product, diminishing returns, costs, and profit.
- How they connect: opportunity cost becomes the owner's implicit cost.
- Where we're going next: Week 10 brings a market price to the cost table.
Focus
What does one more worker add, what does one more chair cost, and is the business beating its owner's next-best job?
By the end of this module, you should be able to:
- [ ] find where diminishing marginal returns begin
- [ ] compute marginal cost and the three average costs
- [ ] explain why marginal cost crosses the averages
- [ ] tell accounting profit from economic profit
To-do
Plan your week
- Read Chapter 9 (40–50 minutes), then the lecture and slides.
- Work the tutorial (60–90 minutes) and practice set (15–25 minutes).
- Do the Model Workshop (90 minutes), discussion, and assignment.
- Take the quiz.
This week's checkpoint: from a small cost table, find what the next unit adds and what each unit costs on average.
You've got this
Take it in order, and ask your instructor early.
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