Business Costs

Key Terms

fixed cost: cost that doesn't change with output produced; eg. salaries
variable cost: cost that changes with output produced; eg. wages

profit maximization: the point when increasing the level of output won't increase profit (the average cost will begin to rise again)

normal profit: when profit = opportunity cost (business breaks even)
abnormal profit: when a business makes more revenue than its total cost, including opportunity cost

Formulae

revenue = quantity produced * cost per unit

total cost = fixed cost + variable cost

profit = total revenue - total cost

average revenue = total revenue / output

average total cost = total cost / output

marginal cost = change in total cost / change in output