free enterprise in a free enterprise system, there is an economic incentive… and that is money!...
TRANSCRIPT
In a Free EnterpriseFree Enterprise system, there is an economic
incentive… and that is money!
Profit or Loss
For discussion…
• What is profit?
• What is loss?
• How does a business get profit…or loss?
4 important terms
1. Profit
2. Loss
3. Revenue
4. Costs– Total– Average
Refer to Chapter 2.2, pages 43-45 for additional informationRefer to Chapter 2.2, pages 43-45 for additional information
Revenue – the money a business takes in.
total revenue =
the price of the good x the number of the good sold
• Iggy’s Ice Cream Shoppe sells 1,000 ice cream cones at $2.00 a piece.
• Iggy’s total revenue is $2,000.00
1,000 x 2.00 = 2,000.001,000 x 2.00 = 2,000.00
Cost
• Total Cost = average cost of a good x the number of the good sold
Example: It costs Susan 60 cents to make a pair of socks (counting materials, labor, etc.) She makes 100 pairs of
socks.
.60 x 100 = 60.00
Her total cost is $60.00
Cost
• Average Cost = Total Cost / Quantity
Total Cost ($60.00) divided by quantity (100) = .60 cents
(average cost)
also: per-unit cost
Profit
• The amount of money left over after all the costs of production have been paid.
Profit = Total Revenue > Total Cost
(Consider: rent, wages, capital … monetary payments to resources… such as:
mortgage, energy, labor, advertising, materials, insurance, taxes and fees…etc.
Loss
• The amount of money by which costs are greater than revenue.
• Loss = Total Cost > Total Revenue
Another way to think about it…
• Total Revenue – Total Cost = profit or loss
• Positive number = profit
• Negative number = loss
Calculate
• Steve builds skateboards. He pays $20.00 for the deck, $40.00 for the wheels and $10.00 for the trucks. He pays Doris $5.00 to assemble a skateboard. He makes 100. What is his total cost?
• Steve sells 100 skateboards for $110.00. What is his total revenue?
• Profit or loss? How much?• Skateboards don’t sell. He discounts them to
$70.00 and sells all 100. Profit or loss?
Profits Attract Resources
Resources Move Away from Losses
• Please review the info in Chapter 2.2 as needed.
• Consider the documentary “Greed”– Answer Critical Thinking Question #5
See Exhibit 2.2 page 45See Exhibit 2.2 page 45
p. 45
• Many people think that a profit only benefits the person who makes it. In other words, there is no social good to profit. Do you agree or disagree? Explain your answer.