2.2.2 - sales, revenue and costs

    Cards (2)

    • Average total costs:
      • As a firm grows, it can increase its scale of output generating efficiencies that lower its average total costs (AC) of production
      • These efficiencies are called economies of scale 
      • As a firm continues increasing its scale of output, it will reach a point where its average total costs (AC) will start to increase
      • The reasons for the increase in the average costs are called diseconomies of scale
    • Contribution:
      • Contribution refers to a product’s selling price minus the variable costs directly involved in producing that unit
      • It is called contribution, as this amount contributes towards paying off the fixed costs of the business
      • Once the fixed costs have been paid off, then the contribution starts to contribute to the profits of the business
      • Contribution is used to calculate the break even point