Chapter 27: Costs (Version) Flashcards
Why does production generate costs?
Production uses up resources such as materials, labor, and energy, leading to costs.
Costs
Expenses that must be met when setting up & running a business.
What are fixed costs?
Costs that do not vary with the level of output.
Give examples of fixed costs.
Rent, business rates, advertising, interest payments, research & development.
What are variable costs?
Costs that change with the level of output.
Give examples of variable costs.
Raw materials, packaging, fuel, and labor.
What happens to variable costs if output increases?
Variable costs increase as more resources are used.
What happens to variable costs if output decreases?
Variable costs decrease as fewer resources are used.
How is total cost calculated?
Total Cost = Fixed Costs + Variable Costs
Total costs
Fixed cost and variable cost added together.
What is average cost?
The cost of producing a single unit of output.
How is average cost calculated?
Average Cost = Total Cost / Quantity Produced
What is total revenue?
Money generated from the sale of output.
How is total revenue calculated?
Total Revenue = Price × Quantity
What is profit?
The difference between total revenue and total cost.
How is profit calculated?
Profit = Total Revenue - Total Cost
What happens if total costs exceed total revenue?
The business makes a loss.
