COST, REVENUE AND PROFIT

COST, REVENUE AND PROFIT

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Average Cost

Average Cost

The average cost is the production unit cost determined by dividing overall cost (TC) by actual volume (Q). They say that both fixed and contingent costs for each unit cost of output are taken into account for the total cost estimate.

This is also considered the average cost per unit.
Total Cost per unit of output = Total cost / output = TC/ Q

 

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Average Cost Pricing

Set prices below the average level. It is a means of maximizing revenue while retaining regular earnings. It is often referred to as Sales maximization.

Average Fixed Cost

Average Fixed Cost (AFC), which is determined by volume (Q) of the manufactured output, is the fixed cost of production (FC). Fixed costs are those costs that, irrespective of production volume, are to be borne for fixed quantities.

The variable cost average per unit of production is fixed cost. Total Fixed cost per unit of output = TFC/Q
Example: Assume a firm produces clothing. When the quantity of the output varies from 5 shirts to 10 shirts, the fixed cost would be 30 dollars.

In that case, the average fixed cost of 5 shirts will be $30 and 5 shirts, $6. In other words, if there were 5 tops, a fixed cost of $30 would extend to $6 per shirt. Similarly, the average cost of 10 shirts would be $3 from $30 divided by 10 shirts, too.

(In the above example, the average fixed cost and average variable cost were not given. The same finding as above will be obtained if the company knows about the average fixed cost and the average variable cost.

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As the gross average cost is a static mean plus nominal fixed cost, the average fixed cost is a gross average minus the estimated norm.

Since 5 shirts yield an overall direct cost of $11 with an average variable cost of $5 the fixed cost is $6. Similarly, the firm manufactures 10 shirts with an estimated fixed cost and average variable cost respectively of $10 and $7. The estimated operating cost in this situation will be $3).

 

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Average Cost Revenue

The average revenue is the revenue generated by the unit of output sold. It is necessary to determine the income of a business.

The average profits per unit value is minus the average costs (total). A business typically aims at making the greatest amount of income.
Total Revenue per unit of output = Price/Output

Average Variable Cost

The average variable cost (AVC) for each unit of production is the total variable costs. This is calculated by dividing overall variable cost (TVC) by overall performance (Q).

All costs varied with production, such as material and labor, are Total Varying Cost (TVC).
Total Variable Cost per Unit of output = TVC/ Q

 

PROFIT

Surplus profits overspending, or favorable investment returns. Profit margin the benefit to income ratio as a percentage presented. The income maximization, Maximization Where marginal costs are = marginal sales, the primary indicator being the willingness of a business to handle costs.
Unit income = AR – ATC. Benefit per user.

In markets where demand is inelastic prices, a company will raise sales well above average cost, which results in a higher profit margin for each unit sold. Profit margins would be smaller in dynamic economies because demand is price elastic.

MARGINAL COST

Marginal benefit marginal income marginal benefit marginalization.
the increase in gross costs by raising demand by one extra unit – the formula for MC is the difference in total expense. MR and MC income marginal profit marginal gain. Where MR = £20 and MC = €14 marginal income = £6.

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MARGINAL REVENUE

MARGINAL REVENUE

Marginal revenue is the extra profit generated by the rise in one unit in commodity sales. The additional revenues generated by the selling of an additional unit of a good in a totally competitive market are proportional to the price the company is willing to charge the customer for the good.

A revenue schedule describes the total revenue earned and the income incremental for each unit to help in the computation of marginal revenue.

The first column of the sales plan lists in-order the estimated amounts demanded and the second column lists the corresponding selling price.

Complete expected sales are the sum of these two columns, in column 3.

The difference between the total revenue projected for one amount and the total revenue projected for the below line is the marginal revenue for the second line, which is the amount demanded.

For example,

(10 units are selling cheap at $9 each with a revenue total of $90, 11 units are selling at $8.50 with revenue totaling $93.50 respectively. This shows that the 11th unit has a marginal revenue of 3.50 dollars).

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