Chapter 5 Section 3 What are the advantages and disadvantages of buying something off of the Internet?
Measures of Cost Fixed cost—the cost that a business incurs even if the plant is idle and output is zero Also called overhead Includes salaries paid to executives, rent payments, interest on borrowed money, and taxes Variable cost—a cost that changes when the business rate of operation or output changes Wage-earning workers, electric power charges, or freight shipping expenses
Total cost—sum of fixed and variable costs Figure 5.6 on pg. 128 Marginal cost—the extra cost incurred when a business produces one additional unit of a product Total cost divided by total products
Measures of Revenue Total Revenue Marginal Revenue Number of units sold multiplied by the average price per unit Marginal Revenue Extra revenue associated with the production and sale of one additional unit of output Dividing the change in total revenue by the marginal product
Marginal Analysis Comparing the extra benefits to the extra costs of an action (marginal costs vs. marginal revenue) Break-even point Total product the business needs to sell in order to cover its costs Profit maximizing is reached when marginal costs and marginal revenue are equal Figure 5.6 on pg. 128