Chapter 3.3 - Costs and revenues Flashcards
Average cost (AC)
Refers to the cost per unit of output.
Calculated as AC = TC / Q
(TC = Total Cost ; Q = Quantity (output)
Average revenue (AR)
Refers to the value of sales received from customers per unit of a good or service sold.
Calculated as AR = TR / Q = P
(TR = Total revenue)
Cost
Refers to the sum of money incurred by a business in the production process
(costs of raw materials, wages, salaries, insurance, advertising, rent)
Direct costs
Costs specifically attributed to the production or sale of a particular good or service
Fixed costs
The costs that do not vary with the level of output. They exist even if there is noput
Indirect costs/overheads
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
Profit
Exists when there is a positive difference between a firm’s total revenues and its total costs
Revenue
The money a business earns from the sale of goods and services. Calculated by multiplying the unit price of each product by the quantity sold
Revenue stream
Refers to the money coming into a business from various business activities
(sponsorship deals, merchandise, receipt of royalty payments)
Running costs
Ongoing costs of operating the business
Set-up costs
Items of expenditure needed to start a business
Total costs
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/services.
Calculated by multiplying the price of a product by the quantity sold
Variable costs
Costs of production that change in proportion to the level of output
(raw materials, hourly wages of production workers)
