revenue, costs, profits and cash Flashcards
Give the equation for Total Revenue and Average Revenue.
- Total Revenue = Price x Number Sold
- Average Revenue = Total Revenue / Number Sold
Define Marginal Revenue and recall how to calculate it.
This is the extra revenue earned from producing one extra unit of output.
Calculated by taking the differences of total revenue between different levels of output.
What are the two different types of costs in business?
Fixed Costs and Variable Costs.
Give an example of fixed and variable costs.
Fixed; rent
Variable; raw materials costs
Give the equation for the percentage change of two figures.
(New value - Old value) / Old value
Define contribution.
This is the total profit made by selling each product.
Give the equation for contribution.
Contribution = Selling price - Variable costs per item
Why does the contribution equation exclude fixed costs?
This is because fixed costs do not vary with output.
What is the Margin of safety?
This is the difference between the actual level of output and the break-even level of output, thus indicating how much sales can fall by before the firm breaks-even.
How does profit act as a signal in markets?
High profit margins, incentivise new firms to enter the market and vice versa.
How does price act as a signal in markets?
It signals where resources are most needed in the market.
What is the statement of comprehensive income?
This shows the revenues and expenses of a firm, thus giving an overview of a firm’s financial position.
How will an increase in expenditures change net income?
It reduces net income, because expenditure are cash outflows.
Name the 3 ways a firm measures profitability.
- Gross profit margin
- Operating profit margin
- Net profit margin
Define operating profit margin.
This is the profit earned from the core business operations.
