revenue, costs & profit

• what is revenue ?

  income earned by a business
• how can you work out revenue?

  revenue = sales x price
• what are costs?


  costs are expenses paid out to run a business
• what are fixed costs?


  Costs that do not vary with the level of production or sales. they have to be paid even if the firm produces nothing. eg rent, insurance, fixed salaries
• what are variable costs?

  variable costs are costs that will increase as the firm expands output. eg costs of factory labour, raw materials and running machinery
• true or false. fixed costs cant change

  false. they are only fixed over a short period of time— and expanding firms costs will go up
• how do you work out total costs?


  total costs = variable costs + fixed costs
• what is average unit costs?

  how much each product costs to make
• how do you work out average unit costs?

  average unit costs = total costs / output
• firms have to charge a higher price than the average unit costs to make a profit
• when do average unit costs fall?

  they fall as the firm grows due to economies of scale
• how do you work out profit ?

  profit = revenue - costs