Costs, Revenue and Profit Flashcards
What’s the short run?
When there’s at least one factor of production.
What’s the long run?
When all factors of production are variable.
What are fixed costs?
Costs that don’t change with the level of output.
What are examples of fixed costs?
Rent
Salaries
Interest on Loans
Advertising
Business Rates
What are variable costs?
Costs that vary with the level of output.
What are examples of variable costs?
Wages
Utility Bills
Raw Material Costs
Transport Costs
What are marginal costs?
The cost of producing one extra unit
How do you calculate average X cost?
X Costs / Output
How do you calculate total revenue?
Price * Output
How do you calculate average revenue?
Total Revenue / Output
What’s marginal revenue?
The revenue gained from selling one extra unit.
What’s profit?
The reward for shareholders of the risk that they’ve taken investing in the business.
What’s normal profit?
Regarded as a cost of production. The level of profit that a firm must make to remain in business in the long run.
What’s abnormal / supernormal profit?
Any profit above normal profit.
What’s subnormal profit?
Any profit below normal profit.
