Cost Of Production, Revenue And Profit Flashcards
What is profit?
Profit is the money a business keeps after it has paid all of its costs
What is revenue?
The money a business has before costs are deducted
What do businesses do with their profits?
- save it to maximise money they can earn from interest
- invest it and accumulate profit
- give bonuses to employees to reward them for their work
Four factors of production?
-land : reward is rent
-labour: reward is wages
-capital: reward is interest
-enterprise: reward is profit
What is land (factor of production)
Anything provided by nature to help produce goods and services
What is enterprise (factor of production)
Enterprise is a person who wants to start something new
What is capital (factor of production)?
Physical items made by people to produce goods and services
What is labour ( factor of production?)
People involved in producing a good or service
What are fixed costs?
Expenses that a business must pay regardless of how much it produces or sells . They do not change with the level of output, e.g. rent, salaries, insurance and equipment depreciation. It is a straight line across the graph.
What are variable costs?
Expenses that change depending on how much a business produces or sells. It is a straight line or curve upwards.
What are total costs?
The complete expenses incurred by a business when producing goods or services. It includes all the costs associated with production such as fixed and variable costs. Understanding total costs helps businesses to set prices and make decisions about production and profitability.
What is average cost?
Total cost divided by the quantity of output
What is marginal cost?
The additional cost of producing one more unit of output
The relationship between marginal and average costs?
When the marginal is greater than the average, the average rises. when the marginal is less than the average the average falls. when the marginal is equal to the average there is no change in the average
Calculations
Marginal cost= change in total cost divided by change in quantity
Average fixed costs= fixed cost divided by quantity
Average variable cost= variable cost divided by quantity
Average total cost= AFC + AVC
