Firms' Costs, Revenue & Objectives

Every firm faces the same basic question: do its revenues from selling its product exceed the costs of making it? If yes, the firm makes a profit and can survive and grow; if no, the firm makes a loss and will eventually leave the market.

This topic looks at:

• the costs a firm pays to produce its output (fixed and variable),
• the revenue it earns from selling that output,
• the profit (or loss) that results,
• how average total cost changes as the firm grows (economies and diseconomies of scale),
• and the objectives a firm's owners set for it.