Unit 3.3 Revision Sheet – Costs and Revenues

What is the definition of Average cost (AC)?

• The cost of producing one unit of output. It is calculated by dividing total costs by the quantity of output produced (AC = TC ÷ Q).

• The total revenue earned from selling all units of output.

• The cost of raw materials used in production only.

• The difference between total cost and total fixed cost.

What is the definition of Average fixed cost (AFC)?

• The fixed cost per unit of output. It is calculated by dividing total fixed costs by the number of units produced and falls as output increases.

• The variable cost per unit of output. It is calculated by dividing total variable costs by the number of units produced and rises as output increases.

• The total cost per unit of output. It is calculated by dividing total costs by the number of units produced and remains constant as output increases.

• The marginal cost per unit of output. It is calculated by dividing marginal costs by the number of units produced and fluctuates as output increases.

What is the definition of Average revenue (AR)?

• The revenue earned per unit of output sold. It is calculated by dividing total revenue by quantity sold and is usually equal to the price of the product.

• The total profit earned from all units sold divided by the number of units.

• The cost incurred per unit of output produced, including fixed and variable costs.

• The total revenue earned from selling all units without considering the number of units sold.

What is the definition of Average variable cost (AVC)?

• The variable cost per unit of output. It is calculated by dividing total variable costs by the quantity of output produced.

• The total cost per unit of output, including both fixed and variable costs.

• The fixed cost per unit of output. It is calculated by dividing total fixed costs by the quantity of output produced.

• The cost incurred for producing one additional unit of output.

What is the definition of Cost?

• The expenses a business incurs during its operations. These include payments for resources such as labour, raw materials, rent, utilities, and insurance.

• The total revenue generated by a business from sales.

• The profit earned by a business after deducting all expenses.

• The value of assets owned by a business.

What is the definition of Direct costs?

• Expenses that can be clearly and directly linked to the production or sale of a specific good or service. Examples include raw materials and wages of workers directly involved in production.

• Expenses that are incurred for the overall operation of a business and cannot be traced to a specific product or service.

• Costs that are only paid once during the lifetime of a business.

• Expenses related to marketing and advertising activities.

What is the definition of Fixed costs?

• Costs that do not change with the level of output in the short run. Examples include rent, insurance premiums, and management salaries.

• Costs that increase proportionally with the level of output. Examples include raw materials and direct labor.

• Costs that are incurred only when production starts. Examples include setup costs and initial investment.

• Costs that fluctuate randomly regardless of output. Examples include unexpected repairs and emergency expenses.

What is the definition of Indirect costs (or Overheads)?

• Costs that cannot be directly linked to the production of a specific product or service. Examples include administrative salaries, office rent, and general insurance.

• Costs that are directly attributable to the production of a specific product or service, such as raw materials and direct labor.

• Costs that are only incurred when a company makes a profit, such as dividends and bonuses.

• Costs that are related to marketing and advertising activities only.

What is the definition of Price (P)?

• The amount customers pay to purchase a product or service. Businesses set prices based on factors such as costs, demand, competition, and business objectives.

• The process of promoting a product to increase sales and awareness.

• The location where a product is sold to customers.

• The physical features and design of a product.

What is the definition of Profit?

• The financial gain made when total revenue exceeds total costs. It is calculated using the formula Profit = Total revenue – Total costs.

• The total amount of money spent on producing goods or services.

• The value of assets owned by a business.

• The difference between fixed costs and variable costs.