3.3 - Costs and revenues Flashcards
Average Cost (AC)
Refers to the cost per unit of output. It is calculated as
AC = TC/Q
Where TC is total cost and Q is quantity (or output level)
Average revenue (AR)
Refers to the value of sales received from customers per unit of a good or service sold. It is calculated as
AR = TR/Q = P
where TR is total revenue
Cost
Refers to the sum of money incurred by a business in the production process, such as the costs of raw materials, wages and salaries, insurance, advertising and rent.
Direct costs
Costs specifically attributed to the production or sale of a particular good or service
Fixed costs
Are the costs that do not vary with the level of output. They exist even if there is no output.
Indirect costs (or overheads)
are costs that do not directly relate to the production or sale of a specific product
Price
Refers to the amount of money a product is sold for. It is the sum paid by the customer to purchase a good or service
Profit
Exists if there is a positive difference between a firm’s total revenues and its total costs.
Revenue
Is the money that a business earns from the sale of goods and services. It is calculated by multiplying the unit price of each product by the quantity sold.
Revenue stream
Refers to money coming into a business from its various business activities, such as sponsorship deals, merchandise and receipt of royalty payments.
Running costs
Are the ongoing costs of operating the business
Set-up costs
Are the items of expenditure needed to start a business
Total costs
Are the sum of all variable costs and all fixed costs of production.
Total revenue
Refers to the money coming into a business, usually from the sale of goods and/or services. It is calculated by multiplying the price of a product with the quantity sold.
Variable costs
Are costs of production that change in proportion to the level of output, such as raw materials and hourly wages of production workers.
