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# Mba 1 me u 2.1 business costs and revenues

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### Mba 1 me u 2.1 business costs and revenues

1. 1. Business Costs and Revenues Course: MBA-1 Subject: ME Unit:2.1
2. 2. Businesses need to know their total costs • Total Costs = Fixed Costs + Variable Costs Fixed Costs = Costs that don’t change based on production. example: rent Variable Costs = Costs that change with rate of production example: cost of raw materials
3. 3. They may also want to know, on average, how much each unit of the good costs them to produce • Average total cost is determined by dividing the total costs by the number of goods produced • (also, per-unit cost) If total cost is \$1,000.00 and we produce 100, then average total cost is \$10.00
4. 4. Firms also want to know the marginal cost Should we produce more? • Marginal cost is the additional cost of producing each additional good. – In economics, marginal = additional • It’s determined by dividing the change in total cost by the change in quantity. ΔTC ÷ ΔQ
5. 5. Businesses want to know total revenue • Total revenue is the price of the good times the number of the good sold.
6. 6. Businesses also want to know marginal revenue Is it profitable to produce more? • Marginal revenue is the additional revenue from selling each additional unit of the good. • It’s determined by dividing the change in total revenue by the change in quantity sold. Δ R ÷ Δ QSold
7. 7. “ How much should we produce?” • As long as marginal revenue is greater than or equal to marginal cost, a firm will continue to produce. MR ≥ MC • If marginal revenue is less than marginal cost, a firm will not produce. MR < MC
8. 8. “Are we making money?” Is there a profit? • To compute profit , subtract total cost from total revenue TR – TC = Profit

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