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Microeconomics Main > 09 Costs & Revenues > Flashcards

09 Costs & Revenues Flashcards

1
Q

Define the Short-Run.

A

When at least one factor of production is fixed, while others are variable.

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2
Q

Define the Long-Run.

A

When all factors of production and costs are variable.

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3
Q

Which factor inputs are fixed or variable?

A

Capital - fixed
Land - fixed
Raw materials - variable
Labour - variable

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4
Q

What is a variable factor input?

A

A factor that varies, due to a change in output.

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5
Q

What is a fixed factor input?

A

A factor that remains fixed, regardless of a change in output.

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6
Q

What are all factor inputs in the long run?

A

Variable.

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7
Q

How could a producer increase capacity?

A
  • By moving into a larger factory
  • Buying new machinery
  • Increasing labour
  • Using more raw materials
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8
Q

How are total costs or revenue calculated?

A

Fixed (costs or revenue) + variable (costs or revenue)

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9
Q

How are average costs or revenue calculated?

A

Total costs (or revenue)/output

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10
Q

How are marginal costs or revenue calculated?

A

Change in total costs (or total revenue)/change in output

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11
Q

Define the Law of Diminishing Return (LoDR)

A

As more of a variable FoP (e.g. Labour) is added to a fixed FoP (e.g. capital), the marginal product of labour will initially rise but eventually fall, thus raising marginal costs.

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12
Q

MC < AC =

A

AC Decrease.

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13
Q

MC > AC =

A

AC Increase.

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14
Q

MC = AC =

A

No change.

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15
Q

What is the equation for Marginal Product?

A

Change total product/change in labour

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16
Q

What is the equation for Average Product?

A

Total product/Labour

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17
Q

Define fixed cost.

A

Costs that do not change with output, but can change year to year.

18
Q

Define variable cost.

A

Costs that change depending on output.

19
Q

Give examples of fixed costs.

A
  • Machinery
  • Rents on business premises
  • Buildings insurance
  • Quarterly heating and lighting bills
  • Salaries of senior staff
  • Annual marketing and advertising budget
20
Q

Give examples of variable costs.

A
  • Wages
  • Working capital
  • Commission
  • Raw materials
  • Packaging and postage
  • Piece-rate
  • Fuel for delivery vehicles
  • Distribution costs
21
Q

What is the equation for AFC?

A

TFC/output

22
Q

What is the equation for TVC?

A

VC per unit x output

23
Q

What is the equation for AVC?

A

TVC/output

24
Q

Define revenue.

A

The inflow of money into a firm.

25
Q

What is the equation for TR?

A

Price x Quantity

26
Q

Define sales.

A

Transaction between a buyer and seller, in which the seller gains revenue.

27
Q

What should firms do to increase sales?

A

Decrease prices.

28
Q

What is the equation for Marginal Revenue?

A

Change in TR/Change in total output

29
Q

Where is TR maximised?

A

Where PED is -1 (unitary).

30
Q

What is the equation for Average Revenue?

A

TR/output

31
Q

What is the equation for Marginal Revenue?

A

Change in TR/Change in output

32
Q

What happens to TR if demand is responsive, and price is decreased?

A

Firms will experience a rise in TR if price is decreased because sales have increased significantly.

33
Q

What happens to TR if demand is unresponsive, and price is decreased?

A

Firms will experience a fall in TR if price is decreased, because sales have dropped due to inelastic demand.

34
Q

What is Average Revenue curve, on a diagram, and what does it show?

A

It is the price and shows that demand curve.

35
Q

When on a MR diagram is revenue maximised?

A

When MR intersects with 0.

36
Q

When does MC rise?

A

When the Law of Diminishing Return comes into effect.

37
Q

Define increasing returns to scale.

A

Where a charge in inputs leads to a more than proportional change in output.

38
Q

Define decreasing returns to scale.

A

Where a change in inputs leads to a less than proportional change in output.

39
Q

Define constant returns to scale.

A

Where a change in inputs leads to a unitary change in output.

40
Q

Define the minimum efficient scale.

A

Where productive efficiency is achieved at the lowest possible output.

41
Q

Increasing RTS is also known as…

A

Economies of Scale.

42
Q

Decreasing RTS is also known as…

A

Diseconomies of Scale.

Microeconomics Main (41 decks)

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