Average unit costs (AQA GCSE Business): Flashcards
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Practise the cards
13 cards from this deck
What is average unit cost?
What is average unit cost?
Cost to produce a single item/unit of output
Average unit cost formula
Average unit cost formula
Total Costs ÷ Output
Total costs formula
Total costs formula
Fixed Costs + Variable Costs
Fixed costs
Fixed costs
Expenses that don't change with output (e.g., rent)
Variable costs
Variable costs
Expenses that change with production (e.g., raw materials)
Economies of scale
Economies of scale
Increasing production leads to lower average unit costs
Why economies of scale reduce costs
Why economies of scale reduce costs
Fixed costs spread across more units
Diseconomies of scale
Diseconomies of scale
When business grows too large, average unit costs rise
When average unit costs decrease
When average unit costs decrease
Indicates business becoming more efficient
When average unit costs increase
When average unit costs increase
Indicates business becoming less efficient
Optimal production level
Optimal production level
Where average unit costs are at their minimum
Low average unit costs & profit
Low average unit costs & profit
Low costs ≠ automatic profit; price must exceed costs
Competitive advantage from low costs
Competitive advantage from low costs
Can offer lower prices or higher profit margins