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Topic 6 Grade 11 Costs & Revenue
Economics (Coronation Secondary School)
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Economics /Notes Effect of costs and revenue Nkangala District/ 2025
ECONOMICS NOTES
TOPIC: EFFECTS OF COSTS AND
REVENUE
GRADE: 11
YEAR: 2025
1
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Economics /Notes Effect of costs and revenue Nkangala District/ 2025
TOPIC: EFFECTS OF COSTS AND REVENUE
1. OBJECTIVES OF BUSINESSES
− In a market economy, any business’ main objective/goal is to make profit. But firms
often have more than one goals.
− Whatever the goal/objectives of a firm are, those goals should follow the SMART
principle.
SMART principle means the firm ‘s objective/goal has to satisfy the following
conditions:
Specific: the objective has to be clearly stated, so that it is understandable e.g.
to increase the firm’ profits
Measurable: it should be possible to measure whether the objective has been
achieved or not, for example the firm monthly profit should be a minimum of 10%
Agreeable/Acceptable: All firm’s managers and workers should accept/agree
with the objective and be willing to work together to achieve it.
Realistic: the objective has to be reasonably possible to achieve given the
circumstances the firm. For example, if the firm has been making losses, it would
not be reasonable to set a goal of increasing profit, instead it should make a
goal of reducing loss or achieving a break-even.
Time specific: the firm should specify the time frame for achieving the objective,
for example, the firm should increase its profit by more than 10% in 2025.
DIFFERENT OBJECTIVES OF A FIRM
− Survival objective: some firms especially the newly established ones can aim to
survive especially in the first year.
− Factors that make difficult for some firms NOT to survive in the market are:
• high start-up costs,
• competition from well- established firms
• lack of experience of operating in the market
− Revenue maximising objective: A firm ‘s main aim is to make high revenue to cover
all the costs. Sometime the profit made after expenses may not be as high.
− Sales maximising objective: the firm want its products to be known and used by
majority of consumers. So, its objective will be to charge lower price to make the
product affordable. The profit made will be low as a result of lower prices.
- Profit maximising objective: Profit maximising means to make as much profit as
possible, and this is the aim of many firms especially the well- established firms.
- Profit is the positive difference between the firm’s total revenue and the total costs
of production.
- Accountants and Economists count profit differently. For an accountant, profit is
the positive difference between total revenue and explicit costs of production.
- This means to determine accounting profit, only the costs related to production
(factors of production) are considered e.g. raw material, wages and salaries,
transport, building, water electricity, administration etc. These costs are called
explicit costs.
2
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Topic 6 Grade 11 Costs & Revenue
Economics (Coronation Secondary School)
messages.pdf_cover_qr_code_label
messages.studocu_not_sponsored_or_endorsed_by_college
messages.downloaded_by
, lOMoARcPSD|67655710
Economics /Notes Effect of costs and revenue Nkangala District/ 2025
ECONOMICS NOTES
TOPIC: EFFECTS OF COSTS AND
REVENUE
GRADE: 11
YEAR: 2025
1
messages.downloaded_by
, lOMoARcPSD|67655710
Economics /Notes Effect of costs and revenue Nkangala District/ 2025
TOPIC: EFFECTS OF COSTS AND REVENUE
1. OBJECTIVES OF BUSINESSES
− In a market economy, any business’ main objective/goal is to make profit. But firms
often have more than one goals.
− Whatever the goal/objectives of a firm are, those goals should follow the SMART
principle.
SMART principle means the firm ‘s objective/goal has to satisfy the following
conditions:
Specific: the objective has to be clearly stated, so that it is understandable e.g.
to increase the firm’ profits
Measurable: it should be possible to measure whether the objective has been
achieved or not, for example the firm monthly profit should be a minimum of 10%
Agreeable/Acceptable: All firm’s managers and workers should accept/agree
with the objective and be willing to work together to achieve it.
Realistic: the objective has to be reasonably possible to achieve given the
circumstances the firm. For example, if the firm has been making losses, it would
not be reasonable to set a goal of increasing profit, instead it should make a
goal of reducing loss or achieving a break-even.
Time specific: the firm should specify the time frame for achieving the objective,
for example, the firm should increase its profit by more than 10% in 2025.
DIFFERENT OBJECTIVES OF A FIRM
− Survival objective: some firms especially the newly established ones can aim to
survive especially in the first year.
− Factors that make difficult for some firms NOT to survive in the market are:
• high start-up costs,
• competition from well- established firms
• lack of experience of operating in the market
− Revenue maximising objective: A firm ‘s main aim is to make high revenue to cover
all the costs. Sometime the profit made after expenses may not be as high.
− Sales maximising objective: the firm want its products to be known and used by
majority of consumers. So, its objective will be to charge lower price to make the
product affordable. The profit made will be low as a result of lower prices.
- Profit maximising objective: Profit maximising means to make as much profit as
possible, and this is the aim of many firms especially the well- established firms.
- Profit is the positive difference between the firm’s total revenue and the total costs
of production.
- Accountants and Economists count profit differently. For an accountant, profit is
the positive difference between total revenue and explicit costs of production.
- This means to determine accounting profit, only the costs related to production
(factors of production) are considered e.g. raw material, wages and salaries,
transport, building, water electricity, administration etc. These costs are called
explicit costs.
2
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