Business costs, revenues and profit Flashcards
Cost
expenses that must be met when setting up and running a business -> can be classified according to how they behave when output changes
Fixed cost
(also known as overheads)
production costs that do not vary with the level of output.
e.g. rent, business rates, insurance premiums, interest payments, etc. -> these costs will NOT increase even if firms produce more outputs
Variable costs
costs that change when output levels change -> if firms produce more output, variable costs will INCREASE but when cut the variable costs will FALL.
e.g. raw materials, packaging, fuel and labour
Total cost
fixed costs and variable costs added together
Total cost calculations
TFC (total fixed costs) + TVC (total variable costs)
Average cost of production
is the cost of producing a single unit of output
Average cost equation
total cost / quantity produced
Total revenue
the amount of money a firm receives from selling its output
Total revenue equation
price x quantity
Profit equation
is the difference between total revenue and total costs
total revenue x total costs
