Edexcel IGCSE Economics (4EC1) · Section B: Business Economics
Specification points
- Fixed, variable, total and average costs.
- Total and average revenue.
- The calculation of profit and the objectives of firms.
Costs
- Fixed costs do not change with output (rent, insurance).
- Variable costs change with output (raw materials, hourly wages).
| Cost | Formula |
|---|---|
| Total cost | Fixed cost + variable cost |
| Average cost | Total cost ÷ output |
Revenue and profit
| Term | Formula |
|---|---|
| Total revenue | Price × quantity |
| Average revenue | Total revenue ÷ output (= price) |
| Profit | Total revenue − total cost |
Key definitions
| Term | Definition |
|---|---|
| Fixed cost | A cost that does not change with output. |
| Variable cost | A cost that changes with output. |
| Profit | The surplus of total revenue over total cost. |
Objectives of firms
Firms may aim to maximise profit, but also to survive, grow (market share and economies of scale), or pursue social and ethical goals.
Worked example
A firm sells 500 units at £10 = £5,000 total revenue. Fixed costs are £1,500 and variable costs £2,000, so total cost = £3,500. Profit = £5,000 − £3,500 = £1,500. Average cost = £3,500 ÷ 500 = £7, below the £10 price, confirming the firm is profitable.
Common exam mistakes
- Mixing up fixed and variable costs.
- Forgetting that average revenue equals price.
- Calculating profit as revenue only, ignoring costs.
Exam technique
Learn the formulas and practise calculating total cost, revenue, average cost and profit from a data table — a common IGCSE question.
Quick revision
- Total cost = fixed + variable; average cost = TC ÷ output.
- Total revenue = price × quantity; profit = TR − TC.