firms cost, revenue and objectives Flashcards
(18 cards)
define costs of production
Costs of production refer to
a firm’s expenditure in the
process of producing goods
and/or providing services.
define fixed costs
Fixed costs are costs that a
firm has to pay irrespective
of how much it produces
or sells
define variable costs
Variable costs are those
that change as the level of
output changes. The higher
the level of production, the
greater the total variable
costs will be
what are some examples of cost of production
- wages and salaries paid to employees
- rent paid to land owners for hiring business premises
- advertising expenses
- purchases of raw materials and components from suppliers
define total cost
Total cost is the sum of all
fixed and variable costs of
production
define average fixed cost
Average fixed cost refers to
a fi rm’s fixed cost per unit
of output
how can we calculate the total cost
total cost = fixed costs + variable cost
how can we calculate the average fixed cost
Average fixed cost = fixed cost ÷ output level
define average variable cost
Average variable cost
refers to the variable cost
per unit of output
define average total cost
Average total cost is the
cost per unit of output
what is revenue
Revenue refers to the money payable to a business from the sale of its products.
define total revenue
Total revenue is the
amount payable to a firm
from the sale of its goods
and services
how can we calculate the total revenue
Total revenue = price × quantity sold
what is the average revenue
Average revenue refers to the typical price received from the sale of a
good or service
how can we calculate the average revenue
Average revenue = total revenue ÷ quantity sold
what is an objective
Objectives are the goals or targets of an organisation, such as business survival,
social welfare, growth and profit maximisation
what are some of the objectives of firms
- survival
- social welfare
- growth
- profit and profit maximisation
how can we calculate the profit
Profit = total revenue − total costs
