1. Cost, Revenue, and Profit Maximization

2. Measures of Cost There are several ways businesses measure costs.
Fixed Costs – costs that do not change with the change in level of production, also call overhead
Variable Cost – costs that change with the change in level of production

3. Measures of Cost

4. Measures of Cost Total Cost – sum of the fixed and variable costs
Marginal Cost – extra cost of producing one additional unit of production.

5. Measures of Cost
Marginal Cost

6. Applying Cost Principles
Fixed and Variable costs affect how a business operates.
Many firms are turning to e-commerce because
Overhead costs are low
There is a low need for inventory

7. Applying Cost Principles
After businesses measure their costs, they determine the break-even point, the point at which costs equal revenues
Businesses wanting to do better than break-even apply principles of marginal analysis to their costs and revenues.

8. Marginal Analysis and Profit Maximization
Two key measures of revenue are used to find the amount of output that will produce the greatest profits:
Total Revenue – total amount earned by a firm from the sale of its products

9. Marginal Analysis and Profit Maximization
Marginal Revenue – extra revenue from the sale of one additional unit of output

10. Marginal Analysis and Profit Maximization
Total Profit – is found when you subtract total cost from total revenue.

11. Marginal Analysis and Profit Maximization

12. Marginal Analysis and Profit Maximization
Marginal Analysis – a type of decision making that compares the extra benefits of an action to the extra costs of taking the action.
Profit Maximization is reached when marginal cost and marginal revenue are equal

13. Marginal Analysis and Profit Maximization