3.1.4 Production, costs, revenue and profit

Main business objective

Profit maximisation

3 Other business objective examples

Increase market share, increase sales, survive

Public Sector Organisation

Owned by the government, provides g/s for the benefit of the community and operate with money from taxes

Public Sector Organisation example

School

Private Sector Organisation

Owned by individuals, driven by profit and operates with money from shareholders and bank loans

Private Sector Organisation example

Franchises

Fixed costs

Do not vary with output

3 examples of fixed costs

Rent, advertising, machinery

Variable costs

Vary directly with output

Examples of variable costs

Raw materials, electricity, wages

Profit formula

Total Revenue - Total Cost

Production

The total amount of money made by a business in a given time period

Productivity

Measures how much each employee makes over a period of time

Efficiency

Maximising outputs and minimising unit costs

3 factors that impact productivity

Technology, incentives, education/training

3 benefits of increased productivity

Reduced production duration, lower costs, better quality products

Economies of Scale (EoS)

The costs advantage that a business obtains when expanding their scale of operations 

Technical EoS

Large scale machines which reduce average costs

Managerial Eos

Employment of specialist workers can streamline operations

Financial EoS

Large firms get better interest rates from bank

Risk-Bearing EoS

Bigger firms are more likely to survive downturns

Purchasing EoS

Lower average costs when bulk-buying

Diseconomies of Scale

When increasing output leads to average unit costs increasing

Motivational DoS

Decreases productivity

Communication DoS

Can be hard to discuss ideas in bigger firms - miscommunication

Managerial DoS

Management structure can become overly complex and less efficient