Application 7 pg. 22 -24 Flashcards
Define fixed cost
fixed cost - an expense that does not change even if the business is not producing anything
Describe fixed costs
> salaries of owner or manager, rent or lease payments, interest the company owes because of loans or debt, various taxes on property and equipment, and depreciation (wear and tear on equipment)
Define variable cost
variable cost - an expense that changes as the operation of the business is carried out
Describe variable cost
> largest variable cost for most businesses is wages for their employees
utilities to run equipment and to heat and cool facilities and raw materials to produce the products the company makes
each variable cost usually depends on how much product is manufactured
Define total cost
total cost - sum of the fixed and variable costs
Define marginal cost
marginal cost - the cost to produce one more unit of a product
Define marginal product of labor
marginal product of labor - how much additional output a company can produce by adding one more worker
Define profit
profit - the total revenue from sales minus the total cost of producing products
Define marginal cost and how to calculate it
marginal cost - the additional cost to produce one more pot
>To calculate marginal cost, divide the change in total cost by the change in production output
How do you find the marginal revenue?
To determine the marginal revenue, the total revenue is divided by the production output.
How do you find the total revenue?
Multiplying the marginal revenue by the output of pots per day will give the total revenue.
How do you find the profit per day?
The profit per day is determined by subtracting the total cost from the total revenue.
From another perspective, by determining the marginal profit, the owner of the company can observe what?
From another perspective, by determining the marginal profit, the owner of the company can observe that the point when increasing pottery production by one additional unit results in no additional income.
