Week 3 Flashcards
Extent Decisionsand Investment Decisions
Extent decisions
a decision regarding how much or how many of a product to produce
Marginal analysis
an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity
Marginal cost equation
MC = TCQ+1 – TCQ
Marginal cost (MC) definition
Cost to make and sell one additional unit of output
Variable costs definition
Costs which change with the level of output
Total costs
Fixed costs + Variable costs
Variable costs equation
VC = MCxQ
Average costs definition
Per unit cost of production
Average cost equation
Average costs = total costs / quantity
Marginal revenue definition
Additional revenue gained from producing and selling one more unit
Profit maximisation =
MR = MC
Break-even quantity
Amount needed to sell to cover your costs
Break-even quantity equation
Q=FC/(P-MC)
Contribution margin
the amount of sales revenue that remains for a product or service after its variable costs are deducted.
Low discount rate
is an interest rate used in discounted cash flow (DCF) analysis that favors longer-term projects and a higher present value of future cash flows
