1. Costs and Revenues

2. Variable costs Costs which vary as the output of the business varies Costs which vary as the output of the business varies Eg if a restaurant employs more people as it becomes more popular then its wages will also rise – wages are a variable cost Eg if a restaurant employs more people as it becomes more popular then its wages will also rise – wages are a variable cost Typically variable costs are wages, raw materials, transpot costs etc Typically variable costs are wages, raw materials, transpot costs etc

3. Fixed Costs Costs which do not vary as the output of the business varies Costs which do not vary as the output of the business varies Eg as the output of a factory increases the rent paid on the factory will remain the same – rent is a fixed cost Eg as the output of a factory increases the rent paid on the factory will remain the same – rent is a fixed cost Typically fixed costs are rent, salary, machinery etc Typically fixed costs are rent, salary, machinery etc

4. Short run v Long Run The cases we have considered are all short run examples The cases we have considered are all short run examples In the long run all costs will be variable In the long run all costs will be variable Eg if the output of the factory we considered keeps rising eventually the company will rent another or a bigger factory and rent will increase Eg if the output of the factory we considered keeps rising eventually the company will rent another or a bigger factory and rent will increase

5. Semi-variable costs Those elements of the business which have fixed and variable aspects Those elements of the business which have fixed and variable aspects Eg electricity – some useage may be fixed such as lights whereas that supplied to machinery may be variable Eg electricity – some useage may be fixed such as lights whereas that supplied to machinery may be variable

6. Total Costs All costs of the business/organisation All costs of the business/organisation Consists of fixed and variable costs Consists of fixed and variable costs Total costs=fixed costs + variable costs Total costs=fixed costs + variable costs

7. Total revenue The value of goods sold The value of goods sold Total revenue = price X quantity Total revenue = price X quantity Eg 10 books sold at a price of 10, total revenue=10x10=£100 Eg 10 books sold at a price of 10, total revenue=10x10=£100

8. Profit Profit=Total revenue-total costs Profit=Total revenue-total costs Economists see profit as the reward to entrepreneurs for risk taken in organising the factors of production Economists see profit as the reward to entrepreneurs for risk taken in organising the factors of production Land-rent, labour-wages, capital-interest, enterprise-profit Land-rent, labour-wages, capital-interest, enterprise-profit