Chapter 4

• What is the formula for total costs (TC)?


  TC = FC + VC
• Where does the TC line start on a graph?


  Where the FC line meets the y-axis
• How is the TC line plotted in relation to the VC line?

  It is plotted parallel to the VC line
• What happens when revenue exceeds total costs?

  A profit is made
• What happens when total costs exceed revenue?

  A loss is made
• How is profit calculated?

  Profit = Total Revenue − Total Costs
• What is the objective of profit maximization?

  • Achieve highest surplus of revenue over costs
• How can a business increase revenue?

  1. Increasing prices
  2. Increasing products or services sold
• How does reducing unit costs affect profit margin?

  It increases the profit margin
• Why do higher prices act as an incentive for producers?

  They tend to mean higher profits
• What do costs represent for a business?

  Money going out of the business
• What do revenues represent for a business?

  Money coming into the business
• How do firms generate revenue?

  By selling goods and services
• What happens to production costs as output increases?

  Production costs generally rise
• What occurs if production costs fall?

  Firms can supply more at each price
• What happens if production costs rise?

  The supply curve shifts to the left
• What are some ethical and moral considerations for businesses?

  • Paying sufficient business taxes
  • Equality of pay for staff
  • Environmental impact
  • Avoiding exploitation of workers
• What is the cost of the BBQ Angus bought for his burger business?

  £200
• What is the cost of the apron and utensils Angus bought?

  £50
• How much does Angus pay for rent per day?

  £50
• What is the cost of ingredients for one burger Angus sells?

  £1.00
• How much profit did Angus make after selling 300 burgers?

  £450
• How much did Angus pay himself from the profit?

  £180
• What is the definition of ethics in a business context?

  Doing the 'right thing' by society's standards
• What do moral considerations refer to?

  Actions that contravene principles
• What are the key definitions related to costs and revenue?

  • Fixed costs: Do not vary with output
  • Variable costs: Vary with output
  • Total costs: All costs for a set period
  • Revenue: Money earned from sales
• What is the total revenue expected from selling 1,500 units at £25 each?

  £37,500
• What is the profit when total costs are £22,000 and revenue is £37,500?

  £15,500
• What is the total cost when fixed costs are £26,000 and variable costs are £18,750?

  £44,750
• What is the revenue from selling 750 units at £26 each?

  £19,500
• What is the difference between production and productivity?

  Production is quantity; productivity is efficiency
• What are the factors impacting productivity?

  1. Division of labour
  2. Use of technology and machinery
  3. Training of workers
  4. Improving morale at the workplace
  5. More effective management
• What are the benefits of increased productivity?

  • Increases output leading to higher sales
  • Lowers costs leading to higher profits
  • Makes business more competitive
  • Improves product quality
  • Can lead to higher wages for workers
• What is the role of a good manager in productivity?

  Ensure subordinates work effectively
• What is the definition of inputs in production?

  Raw materials and factors of production
• What does productivity measure?

  Efficiency of production
• How can productivity be improved?

  By increasing efficiency in production
• What is the significance of measuring productivity?

  To assess efficiency and output generation
• What is the impact of improved productivity on costs?

  It should lower costs
• What is the relationship between productivity and wages?

  Higher productivity can lead to higher wages