BAC101: Basic Microeconomics

Module no.: 5
Module Title: Production and Cost

Writer: Adrian Z. de Lumen, LPT, MM

Opening prayer:

Heavenly Father,

Thank you for the talents and gifts you have given me and for the
opportunity of education. As we begin this module, Lord, please open my
eyes to new learnings. I pray for wisdom as I engage to learn through this
module for clear mind as I read and view the materials I pray that the
knowledge I may gain here will transform my heart and mind to follow you
more and be of service to my fellowmen.

May you be glorified, Lord. We ask this in the name of Jesus Christ our
Lord through the intercession of Saint Dominic De Guzman, and Saint
Thomas Aquinas.
Amen.

Topic 5: Production
MODULE INTRODUCTION AND FOCUS QUESTIONS:
We are done with the first player inside the market which is the buyer or
consumer. Let us now proceed to another important player. Of course, if
there is consumer who demands the goods, there must be the one to
supply which is the producer. From the word itself, it must be the one to
produce the goods and services in the market. But have you ever wonder

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

what are the priorities or considerations of a producer in supplying their

products? Most especially what is the law in economics that govern the
production process to avoid loss?

MODULE LESSONS AND COVERAGE:

This module has the following coverage:

Lesson Topics I should be able Estimated time
to …
Subtopic 1 The production  Identify the 2 hrs
concept different
concepts
involved in the
production
process (A)
 Distinguish
between
variable cost
and fixed cost
(A)
 Identify the
producers’ point
of view in the
market (M)
 Compute
sample cost of
production (T)
Subtopic 2 Law of  Define law of 2 hrs
diminishing diminishing
returns returns (A)
 Analyze the
return to scale
(M)

Here is a simple map of the above lessons you will cover:

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

Reminder: To do well in this module, you need to remember and do

the following:

1. Open the indicated website if there is any.

2. Take down notes and copy some important link so that you could go
back whenever you need information given in that site.
3. Review videos/articles as many times as needed
4. Make your google classroom account and enrol yourself to (section to
follow). Make sure to use your complete name as username.
5. All activities, exercises, and pre and post assessment must be answered
and compiled in 1 document (Please see separate document or
answer sheet). Your compilation must be submitted within a week after
receipt of this module in google classroom.
6. Pls. contact your instructor if there is any confusion thru this phone
number 09198144813 or thru facebook messenger with this link
https://web.facebook.com/adrian.delumen.

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

PRE-ASSESSMENT:
Let’s find out how much you already know about this module.

Multiple choice: Write the letter that corresponds to your answer on the
space provided for.

D 1. Any economic activity, which combines the four factors of

production (land, labor, capital, entrepreneurship) to form an
output.
a. consumption b. distribution c. exchange d. production
A 2. Commodities and services used to produce goods and services.
a. input b. process c. output d. storage
C 3. Various useful goods and services that result from the
production process.
a. input b. process c. output d. storage
C 4. A period of time so short that there is at least one fixed input
where changes in the output must be accomplished exclusively by
changes in the use of variable inputs.
a. production b. long run c. short run d. consumption
B 5. Known as the planning horizon. The firm can build new
factories or purchase new machinery.
a. production b. long run c. short run d. consumption

This pre-assessment was just to make you more curious about important
concepts about production and cost. To correct our misconceptions in the
topic let us explore below.

Study: Explore below.

Activity 1: For online and offline students: Assuming you have your own
bakery. By default, you have 1 baker, 1 cashier or attendant, and also 1
item per equipment needed in baking. You need to assess whether the

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

following actions below will be beneficial to your bakery by considering the

number of outputs and income.

Example:
Default data: 1 baker, 1 baking equipment per kind (oven, egg beater, etc)
Additional: 10 dough mixer
Available data: 1 baker, 1 baking equipment per kind (oven, egg beater,
etc) + 10 dough mixer.
Decision: Beneficial or Not beneficial

Note: The addition of every item is not accumulated. Meaning, for every
addition of new item below will have the default data of 1 baker, 1 cashier
or attendant, and 1 baking equipment per kind (oven, egg beater, etc).

1. 2.
Additional: 15 bakers Additional: 1 bakeshop
Decision: Not beneficial Decision: Not Beneficial

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

3. 4.
Additional: 7 ovens Additional: 20 rolling pins
Decision: Not Beneficial Decision: Not Beneficial

5.
Additional: 1 more cashier
Decision: Not Beneficial

Process questions: Explain briefly.

1. What is your most frequent decision? Why do you think so?
My most frequent decision is “Not Beneficial” Because as the bakery
has the default or balance in the production. if we will add every
equipment given on the activity it will be unbalance and the bakery
will be losing money “malulugi”.

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

2. Is it a problem for us to add only 1 item of input and the rest will be
the same? Why?
Yes, for me it will be a problem for us to only add 1 item of input and
the rest will be the same because when we add more input to the
production while holding other inputs fixed, our output will start to
lessen so it will be a loss of money.

The objective of the activity was not to make you crave for bread  but to
show you the initial concept of diminishing returns or the production
decision of every producer. Though normally, as we add our input, our
output will also increase, but that is not always the case. We have to
balance the increase of our input to avoid the so called diminishing return
that may cause loss to our business. To clear things out about the concept
of production, let us proceed below.

End of STUDY:
Your understanding about producers will be increased as you study the
lessons and perform the activities in the RESEARCH phase.

Research: Let us firm up your understanding!

Your main goal in this section is to learn and understand some key
concepts by working on the following questions:
 What are the concepts under production?
 What do we mean by law of diminishing returns?
 Why is our output diminishing instead of increasing?

Also, you will learn how to analyze the different scales of return as part of
the decision making under production process.

Activity No. 2:

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

You have to watch the video first to understand the concept of

production and returns. After internalizing the video, try to answer the
process questions below.

For online students: Please press control + click the image below for the
linked offline video. (If it does not work, open the video manually: “Module
5 - Activity2 Video - Diminishing Returns and the Production Function-
Micro Topic 3.1”)

For online students: https://www.youtube.com/watch?v=xLSRMt-wWAM

(If the link does not work by clicking, copy and paste it to a web browser)

Process questions: Explain briefly.

1. What will happen if we continue to add more workers while the other
inputs are constant?
If we continue to add more workers while the other inputs are
constant the outputs start to diminish or get less at a certain point.
2. What is the main difference of input and output?
Input is the resources to produce things while outputs the things that

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

Producers make or is the result of production.

3. What is the main difference of short run and long run production?
Short run is having at least one fixed resource while long run all
resources are available, it also has the economies of scale

Important concepts:

Production
 any economic activity, which combines the four factors of production
(land, labor, capital, entrepreneurship) to form an output which will
give direct satisfaction to the consumer.

Continue reading. . . . . . Slides 1-46 only (control + click the link)

(If the link does not work, open the file manually: “Reading Material 5-
Production and cost”)

After reading the important concepts, try the exercises below.

Try it 
Exercise No. 1: Complete the table below.
Input Total Product Marginal Average
Product Product
0 0 1. _________ 10. _________
1 3 2. _________ 11. _________
2 8 3. _________ 12. _________
3 14 4. _________ 13. _________
4 19 5. _________ 14. _________
5 23 6. _________ 15. _________
6 26 7. _________ 16. _________
7 28 8. _________ 18. _________
8 29 9. _________ 19. _________

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

Exercise no.2: Solve what is being asked for.

1. A corporation of slippers has 25 workers that can produce an output
of 2,500 pairs per day. The owner decided to double its workforce
that yields to 6,000 pairs per day. What is the return to scale? Show
your solution!

2. A pharmaceutical company has 50 workers that can produce 7,000

COVID-19 testing kits per day. The owner decided to triple its
workforce that yields to 45% increase from its original production.
What is the return to scale? Show your solution!

Exercise no.3: Complete the table below

Q FC VC TC MC AFC AVC ATC

0 5,000 0 5,000 - - - -
1 5,000 1,400 1. 6,400 1,400 2. 5,000 1,400 6,400
2 5,000 1,680 6,680 3. 280 2,500 4. 840 3,340
3 5,000 1,900 6,900 220 5. 1,667 633 6. 2,300
4 5,000 2,150 7,150 7. 250 1,250 8. 538 1,788
5 5,000 2,480 9. 7,480 330 1,000 496 10.
1,496
6 5,000 2,950 7,950 11. 470 12. 833 492 1,325
7 5,000 3,600 8,600 650 13. 714 514 14.
1,228
8 5,000 4,300 9,300 15. 700 625 16.538 1,163
9 5,000 4,600 9,600 300 556 17. 511 18. 1067
10 5,000 5,200 19. 20. 600 500 520 1.020
10,200

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

End of RESEARCH:
In this section, the discussion was about the concepts of diminishing
marginal returns and production concept. Every producer’s concern is its
number of output. They need to maximize every input that they have to
produce greater output. To be able to do that, they need to consider that it
is not always effective to add you’re an input to produce more. A producer
must take note of the capacity of its store, equipment, and workers. After
you have gone into this section, have you answered the question what is
the law in economics that govern the production process to avoid loss?

Now that you know the important ideas about this topic, let’s go deeper by
moving on to the next section.

Analyze: Let us deepen your acquired knowledge!

Your goal in this section is to take a closer look at some aspects of the
topic like the significance of considering production and cost.

In the next activity you will read an article that will deepen your
understanding on production, cost, and profit.

Activity no. 3: Let’s read!

1. For online students:

https://courses.lumenlearning.com/boundless-economics/chapter/the-
production-function/
(If the link does not work by clicking, copy and paste it to a web browser)

2. For offline students: Press control + click the link below for the linked
offline file. (If it does not work, open the file manually:”Reading Material 5-
Production function (Activity 3)”)

Offline link . . . .

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

Continue deepening your understanding. . . slides 47-52 (control + click

the link)
(If the link does not work, open the file manually: “Reading Material 5-
Production and cost”)

Process question: Pls answer briefly

1. What is the purpose of production function?
The purpose of production function is to assess how much output
they should produce given the price of a good, and what mix of
inputs they should use to produce given the prices of capital and
labor.
2. What is a producer surplus?
Producer surplus is the difference between the amount a seller is paid for a
good and the amount the seller pays for the good. It assesses the
benefit received by sellers who participate in a market.

End of ANALSIS
Now that you have a deeper understanding of the topic, you are ready to
do the tasks in the next section.

Action: Let us apply your learnings in the society!

Activity number 4: Performance task

Today’s pandemic has caused global recession. Cost is very crucial for
every household. Let say you are in charge in monitoring your expenses at
home, you are task to list down all possible variable and fixed cost that will
be incurred for a month then compute for the total cost, marginal cost,
average fixed cost, average variable cost, and average total cost.
Supplement your expense inventory with explanation needed below. Do
your performance task by supplying all the needed data using the guide
below. Your work will be evaluated on the required element and conclusion
for the explanation.

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

Guide: List down all possible fixed cost and variable cost on their respective
columns. Indicate the amount of the cost opposite to the name of cost.
The Total fixed cost and Total variable cost must be the value to be used
on the other table below to be completed by you.

Fixed cost (Name Actual cost Variable cost Actual cost

of cost i.e. (Amount) (Name of cost i.e. (Amount)
internet) electricity)
1. internet = 4,000 1. Electricity =5,000
2. Postpaid = 3,500 2. Grocery and =12,000
plan Food
3. = 3. Petrol = 2,500
4. = 4. Water = 1,000
5. = 5. =

Total Fixed Cost =7,500 Total Variable =20,500

(TFC) Cost (TVC)

Note: For TFC and TVC refer the value based on your answer on the table
above. For TC, AFC, AVC, and ATC compute using the TVC and TFC.
Duration TFC TVC TC AFC AVC ATC
1 month 7,

Explain:
Why do we need to monitor our expenses?

Rubric for the graphic organizer

4 3 2 1
Excellent Satisfactory Developing Needs
improvement
Required The model All required All but 1 of Several
element includes all elements are the required required
required included on elements are elements

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

elements as the model. included on were missing.

well as the model.
additional
information.
Conclusion The The One of the More than
conclusion is conclusion is previously one of the
relevant and strong, ties described previously
strong on the the paper aspects of mentioned
current together and the aspects of
setting, leaves the conclusion is the
realistically reader lacking. conclusion is
ties the feeling they lacking.
paper understand
together and what the
leaves the writer was
reader getting at.
feeling they
understand
what the
writer was
getting at.

CLOSURE:
Before closing module 5, as part of conclusion let us clarify that producer
provides supply in the market. Therefore the top priority of a producer is to
maximize its input to produce more output. Thus, in production cost will be
incurred in which they need to monitor if it is still profitable for them to
continue the production based on the producer surplus.

SELF REFLECTION: Kindly put a check on your honest response given

the learning skill.
Learning With confidence Not sure though A little bit
outcomes confused
 Identify the
different

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

concepts
involved in the
production
process (A)
 Distinguish
between
variable cost
and fixed cost
(A)
 Identify the
producers’ point
of view in the
market (M)
 Compute
sample cost of
production (T)
 Define law of
diminishing
returns (A)
 Analyze the
return to scale
(M)

Before you go to the post test, assess yourself using the self-reflection if
you are ready, if not you may reach me via messenger or sms for your
queries.

POST-ASSESSMENT:
It’s now time to evaluate your learning.

I. Multiple choice: Write the letter that corresponds to your answer on the
space provided for.

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

D 1. Any economic activity, which combines the four factors of production

(land, labor, capital, entrepreneurship) to form an output.
a. consumption b. distribution c. exchange d. production
A 2. Commodities and services used to produce goods and services.
a. input b. process c. output d. storage
C 3. Various useful goods and services that result from the production
process.
a. input b. process c. output d. storage
C 4. A period of time so short that there is at least one fixed input where
changes in the output must be accomplished exclusively by
changes in the use of variable inputs.
a. production b. long run c. short run d. consumption
B 5. Known as the planning horizon. The firm can build new factories or
purchase new machinery.
a. production b. long run c. short run d. consumption

Summative Assessment:
I. True or False: Write “T” if the statement is true and “F” if it is false.

_____ 1. Producer provides demand.

_____ 2. Consumer provides supply.
_____ 3. The law of diminishing returns states that as more inputs are
added to production while holding other inputs fixed, the additional outputs
start to diminish at a certain point.
_____ 4. Producer surplus is an economic term for profit.
_____ 5. Costs of production is being deducted to sales.
_____ 6. Implicit costs require a direct outlay of money.
_____7. Explicit costs do not require an outlay of money.
_____ 8. Profit is the firm’s total revenue minus its total cost.
_____ 9. Variable costs vary from its output.
_____ 10. Fixed costs vary from its input.

II. Application: Complete the table below

Labor TP MP AP

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

0 0 - -
1 20 1. _____ 11.
_____
2 50 2. _____ 12.
_____
3 75 3. _____ 13.
_____
4 95 4. _____ 14. 23
5 110 5. _____ 15. 22
6 120 6. _____ 16. 20
7 125 7. _____ 17.
_____
8 125 8. _____ 18.
_____
9 120 9. _____ 19.
_____
10 110 10. 20.
_____ _____

III. Problem solving.

1. A corporation of slippers has 75 workers that can produce an output of
3,500 pairs per day. The owner decided to add 25 more
workers that yields to 6,000 pairs per day. What is the return
to scale? Show your solution!

Congratulations! You are done with Module 5. 

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813
 BAC101: Basic Microeconomics

Closing prayer:

Dear Lord,

I have invested a great deal in this module with honest and noble
intentions. I have made sacrifices as you have made sacrifices for us. I
have used the gifts you have given me, remained steadfast and focused,
and have put my heart and soul into this module. I pray for intercession
and honest reward through Jesus Christ, whom all good things come from.
Amen.

Sources:
- Slavin, S.L., (2009). Microeconomics 9th Edition. NY: McGraw Hill
Companies

Adrian Z. de Lumen
Instructor, GE3
[email protected] / 09198144813