Chapter 5, Section 3 Cost, Revenue, and Profit Maximization

Measures of Cost  Fixed Cost = the cost that a business incurs even if the plant is idle and output is zero (salaries, rent payments, taxes) (Figure 5.6, pg. 128)  Total Fixed Cost = overhead (Figure 5.6, column 4)  Variable Cost = Cost that changes when the business rate of operation or output changes (Figure 5.6, column 5)

Measures of Cost  Total Cost = the sum of fixed and variable cost (pg Figure 5.6, column 6)  Marginal Cost = per-unit increase in variable cost that stems from using additional factors of production (Figure 5.6, column 7)

Measures of Revenue  Total Revenue = the number of units sold multiplied by the average of price per unit (Figure 5.6, column 8)  Marginal Revenue = the extra revenue associated with the production and sale of one additional unit of output (Figure 5.6, column 9)

Marginal Analysis  A type of cost-benefit decision making that compares the extra benefits to the extra costs of an action  Break-even point = the total output or total product the business needs to sell in order to cover its total costs (Figure 5.6, between 7 and 20 units)  Profit-maximizing quantity of output = marginal cost and marginal revenue are equal (Figure 5.6, 9 th worker)