3.7

Firms' costs, revenue and objectives

10 flashcards to master Firms' costs, revenue and objectives

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Definition Flip

Define 'fixed cost' and provide an example.

Answer Flip

Fixed costs are expenses that do not change with the level of output. Examples include rent for a factory or the salaries of administrative staff. These costs remain constant regardless of production volume.

Definition Flip

What are 'variable costs' and give a business example?

Answer Flip

Variable costs are expenses that change directly with the level of production.

Example: the cost of raw materials or wages paid to hourly production workers will increase as output increases.
Key Concept Flip

Explain how to calculate 'total cost'.

Answer Flip

Total cost (TC) is the sum of fixed costs (FC) and variable costs (VC). The formula is: TC = FC + VC. This represents the overall expense incurred by a firm in production.

Key Concept Flip

Define 'average cost' and how it is calculated.

Answer Flip

Average cost (AC) is the total cost (TC) divided by the quantity of output (Q). AC = TC/Q. It indicates the cost of producing each unit of output on average.

Definition Flip

Explain 'marginal cost'.

Answer Flip

Marginal cost (MC) is the change in total cost resulting from producing one more unit of output. It helps businesses make decisions about production levels and pricing strategies.

Definition Flip

Define 'revenue'.

Answer Flip

Revenue represents the income generated from the sale of goods or services. It is the total amount of money a company receives before deducting expenses.

Key Concept Flip

Describe how to calculate 'total revenue'.

Answer Flip

Total revenue (TR) is calculated by multiplying the price (P) of a product by the quantity (Q) sold. The formula is: TR = P x Q. It represents the total income from sales.

Key Concept Flip

What is 'average revenue' and how is it linked to price?

Answer Flip

Average revenue (AR) is the total revenue (TR) divided by the quantity (Q) sold, so AR = TR/Q. In most cases, average revenue is equal to the price of the good or service.

Definition Flip

Differentiate between 'profit' and 'loss'.

Answer Flip

Profit occurs when a firm's total revenue exceeds its total costs. Loss happens when a firm's total costs exceed its total revenue, indicating a negative financial outcome.

Key Concept Flip

Explain the 'break-even point' for a firm.

Answer Flip

The break-even point is the level of output where a firm's total revenue equals its total costs. At this point, the firm is neither making a profit nor incurring a loss. TR=TC

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3.6 Firms and production 3.8 Market structure

Key Questions: Firms' costs, revenue and objectives

Define 'fixed cost' and provide an example.

Fixed costs are expenses that do not change with the level of output. Examples include rent for a factory or the salaries of administrative staff. These costs remain constant regardless of production volume.

What are 'variable costs' and give a business example?

Variable costs are expenses that change directly with the level of production.

Example: the cost of raw materials or wages paid to hourly production workers will increase as output increases.
Explain 'marginal cost'.

Marginal cost (MC) is the change in total cost resulting from producing one more unit of output. It helps businesses make decisions about production levels and pricing strategies.

Define 'revenue'.

Revenue represents the income generated from the sale of goods or services. It is the total amount of money a company receives before deducting expenses.

Differentiate between 'profit' and 'loss'.

Profit occurs when a firm's total revenue exceeds its total costs. Loss happens when a firm's total costs exceed its total revenue, indicating a negative financial outcome.

About Firms' costs, revenue and objectives (3.7)

These 10 flashcards cover everything you need to know about Firms' costs, revenue and objectives for your Cambridge IGCSE Economics (0455) exam. Each card is designed based on the official syllabus requirements.

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