Business Costs

The costs that do not change when the business changes the amount it produces.

Total Variable Costs = Quantity Sold x Variable Cost per Unit

The costs that rise as the business increases production and fall when it reduces production

The fixed and variable costs of a particular level of production added together

Total Cost = Total Fixed Costs + Total Variable Costs

The costs of each unit produced or provided

Average Cost = Total Cost / Amount Sold

·         Spreading fixed costs – increasing production decreases the average cost per unit

·         Reducing the amount paid for resources and materials – shopping around for lower prices of raw materials or reducing wage costs

·         Increasing efficiency of labour – improving the motivation of workers or change the way in which they work

·         Economies of large-scale production – costs are saved when the scale of production is increased. This can be done by moving to a bigger factory