An introduction to business concepts

• What are fixed costs (FC)?


  Costs that do not change with output
• How do variable costs change?

  They change with the level of output
• What is total variable cost (TVC)?

  Total costs associated with variable inputs
• What does total cost (TC) represent?

  Sum of fixed costs and total variable costs
• How is profit calculated?

  Profit = Total Revenue - Total Costs
• What does cash flow refer to?

  Movement of money in and out of business
• What is revenue?

  Income received from sales
• What is the main aim of most businesses?

  To generate profit
• How is profit a reward to investors?

  Through dividends or reinvested income
• What is cash inflow?

  Money received into the bank account
• What is cash outflow?

  Money paid out of the bank account
• Why is cash flow important for a business?

  Needed to pay bills and expenses
• How does cash flow differ from profit?

  Cash flow is not the same as profit
• What happens when a loan is received?

  It results in cash inflow to the business
• What is the significance of cash flow management?

  Ensures bills can be paid on time
• How can a business increase total revenue?

  By selling more existing products or changing prices
• What is the formula for total revenue?

  Total revenue = Price × Quantity
• What is the competitive environment?

  It includes direct and indirect competitors
• What are direct competitors?

  Businesses selling the same product
• What are indirect competitors?

  Businesses selling different products but serving the same need
• What is the formula for total variable cost (TVC)?

  TVC = Price × Quantity
• What is the formula for total costs (TC)?

  TC = Fixed costs + Total variable costs
• What is the formula for profit?

  Profit = Total revenue - Total costs
• What is the formula for net cash flow?

  Net cash flow = Cash inflow - Cash outflow
• What are the characteristics of a competitive market?

  • Many competitors
  • Customers can shop around
  • Lower prices and better quality
  • Easy for new businesses to set up
• What are the characteristics of a monopoly?

  • Few competitors
  • Customers have limited choices
  • Higher prices
  • High entry barriers for new businesses
• What are the characteristics of an oligopoly?

  • Few large firms dominate
  • Price wars can occur
  • Non-price competition is common
• Why is competition important in business?

  It encourages branding and advertising
• What is the impact of branding in a competitive market?

  It helps differentiate products from competitors
• What is the role of advertising in a competitive market?

  To attract customers and increase sales