Costs, Revenue and Profit Flashcards
Fixed Costs
Costs relate to the fixed factors of production and do not vary directly with the level of output. Examples of fixed costs include: rent, depreciation, advertising costs etc.
Total Costs
Total fixed cost + total variable cost.
Variable Costs
Costs that very directly with output, i.e. We production rises, a firm will face higher total variable costs because it needs to purchase extra resources to achieve an expansion of supply. Common examples of variable costs for a business include the costs of raw materials labour cots etc.
Total Revenue
Refers to the amount of money received by a firm from selling a given level of output and is found by multiplying price by output i.e. number of units sold.
Marginal Revenue
Change in revenue from selling one extra unit of output.
Marginal cost
The change in total cost from increasing output by one extra unit.
Average Cost/ Revenue
Total cost/ total revenue divided by the quantity produced.
Normal Profit
The minimum level of profit required to keep the factors of production in their current use in the long run, which occurs when total revenue equals total costs.
Abnormal Profit
Profit above normal profit i.e. when total revenue exceeds total costs.
Long Run Average Costs
Minimum level of AC attainable at any level of output
