Importance of Cost, Revenue and Profits for Producers

Question 1

explain business objectives: profit maximisation

Answer 1

to achieve the highest possible surplus of revenue over costs

Question 2

explain business objectives: sales growth

Answer 2

to expand, may be through more customers or more sales

growth may be domestic or international

Question 3

explain business objectives: increasing market share

Answer 3

the percentage of the total market that one particular brand or business owns

Question 4

describe what is meant by a fixed cost and give examples

Answer 4

costs that do not vary with the amount of business activity

eg: rent, salaries, machinery

Question 5

describe what is meant by a variable cost and give examples

Answer 5

costs that do vary with the amount of business activity

eg: raw materials, wages, commission on sales

Question 6

state how to find total cost

Answer 6

fixed cost + total variable cost

Question 7

state how to find total revenue

Answer 7

number of items sold x selling price per item

Question 8

state how to find average revenue

Answer 8

total revenue/output

Question 9

explain how higher prices may imply higher profits

Answer 9

if prices rise, producers will make a higher profit per unit as selling price is higher than the variable cost of producing the product.

this will lead to some producers expanding production

some firms will enter the industry, attracted by the higher profits that are available

Question 10

give examples of social costs or poor ethics

Answer 10

providing false information to customers
water, air or noise pollution
destruction of the physical environment

all of these can help to cut costs for firms, thus leading to higher profits