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Subject: Economics
Semester: 2
Period: 5
Week: 26
School Name:
Teacher’s Name:
Subject: Economics
Grade Level: Grade 11
Week & Period: Week 26, Period V
Date:
Topic: Theory of Cost and Revenue
Sub-topic: Cost Concepts
Instructional Objectives
By the end of the lesson, learners should be able to:
- Identify and define fixed, variable, and marginal costs.
- Explain total and average costs.
- Distinguish between short-run and long-run costs.
Instructional Materials
- Charts showing cost classifications
- Business case examples (photocopies)
- Flashcards labeled with cost types
- Marker and whiteboard
Previous Knowledge
Students have already been introduced to the concepts of production and basic definitions of cost and revenue.
A – Anticipation (Engagement/Warm-Up)
Motivational Set (5 minutes)
Pose this scenario to the class:
“A tailor pays $20,000 for rent monthly, $10,000 for cloth materials, and $5,000 for thread. If she makes more clothes, which of these costs will increase and which will remain the same?”
Allow learners to respond. Use this to introduce the idea that some costs stay the same (fixed) while others change with output (variable). Explain that today’s lesson will help them classify and calculate such costs in business.
B – Building Knowledge (Development)
Teacher’s Explanation (20 minutes)
- Fixed Costs (FC)
These are costs that do not change with the level of output.
Examples:
- Office rent
- Insurance
- Salaries of permanent staff
A tailor pays rent monthly, whether she makes 1 or 50 clothes.
- Variable Costs (VC)
These costs change with the level of output.
Examples:
- Cost of cloth materials
- Electricity usage
- Wages of temporary workers
The more clothes produced, the more fabric and thread used.
- Total Cost (TC)
The sum of fixed and variable costs.
TC = FC + VC
- Average Cost (AC)
Cost per unit of output.
AC = TC ÷ Quantity Produced
- Marginal Cost (MC)
The additional cost of producing one more unit.
MC = Change in TC ÷ Change in Output
- Short-Run vs. Long-Run Costs
- Short-Run: At least one input (e.g., machinery or building) is fixed.
- Long-Run: All inputs can be varied; firms can expand production or switch methods.
Class Activity (10 minutes)
Provide a business scenario where students calculate:
- FC, VC, TC, AC, and MC
- Identify which costs would be fixed or variable if output increases
Example:
A bakery produces 50 loaves.
- Rent: $30,000
- Flour: $1,000 per 10 loaves
- Labor: $15,000
Students calculate total and average cost.
C – Consolidation (Wrap-Up and Evaluation)
Teacher Summary (3 minutes)
Reinforce key points:
- Fixed cost doesn’t change with output
- Variable cost increases as production increases
- Total cost = fixed + variable
- Average and marginal costs help firms measure and control spending
Assessment (7 minutes)
- Multiple Choice Questions
- Which of the following is a fixed cost?
Flour
B. Electricity per hour
C. Rent
D. Transportation - Total cost is calculated by:
Adding revenue and output
B. Subtracting variable cost from fixed cost
C. Adding fixed and variable costs
D. Dividing total revenue by quantity - What is marginal cost?
Cost of last month’s production
B. Additional cost for producing one more unit
C. Revenue from total output
D. Total cost per unit
- Short-Answer Questions
- List two examples each of fixed and variable costs.
- Define average cost and provide the formula.
- What is the difference between short-run and long-run cost?
Assignment
A soft drink company produces 200 bottles in one day.
- Rent: $50,000
- Labor: $25,000
- Cost of materials: $75,000
Calculate:
i. Total cost
ii. Average cost
iii. State which costs are fixed and which are variable
Teacher’s Reflection (Questions Only)
- Were the learners actively engaged during the cost classification exercise?
- Were learners able to distinguish clearly between fixed and variable costs during the activity?
- Did students demonstrate an understanding of marginal and average cost through the classwork?
- Were there any misconceptions that persisted even after explanations?
- Did the learners ask questions that reflected deep thinking or confusion?
- Was the time sufficient for students to complete calculations and understand each cost concept?
- How can the transition to short-run and long-run cost concepts be made smoother in the next class?