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Economics - Theme 3 > 3:2:1 Revenue, Costs And Profits > Flashcards

3:2:1 Revenue, Costs And Profits Flashcards

1
Q

What is Total Revenue also called?w

A
  • Turnover

- Sales Revenue

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2
Q

What is Total Revenue?

A

Is the amount the firm received from all its sales over a certain period.

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3
Q

What is the Total Revenue Equation?

A

Total Revenue = Price X Quantity

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4
Q

What is Average Revenue also called?

A

Revenue per unit

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5
Q

What is Average Revenue?

A

Is how much people pay per unit (price) also the demand curve

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6
Q

What is the Average Revenue Equation?

A

Average Revenue = (Total Revenue) / (Quantity)

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7
Q

What is Marginal Revenue?

A

The change in total revenue from selling one more unit

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8
Q

What is the Gradient of the Total Revenue Curve?

A

Marginal Revenue

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9
Q

Both average revenue and marginal revenue tend to be […………….]

A

Downward sloping

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10
Q

How do you calculate Price Elasticity of Demand?

A

(Percentage Change in Quantity demanded) / (Percentage Change in price)

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11
Q

What to remember when calculating Price Elasticity of Demand?

A

Ignore the negative signs

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12
Q

Price Elasticity of Demand - What does a value greater than 1 tell us?

A

Relatively Price Elastic

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13
Q

Price Elasticity of Demand - What does a value that is less than 1 tell us?

A

Relatively Price Inelastic

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14
Q

What does it mean when Demand is inelastic?

A

Rise in price leads to a rise in total revenue / demand

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15
Q

What does it mean when demand is elastic?

A

A fall in price leads to a rise in total revenue

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16
Q

Hat does it mean when Demand is perfectly inelastic?

A

PED = 0

A given change in price will result in the same revenue change

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17
Q

The Price Elasticity of Demand along a […………………………] will vary.

A

Straight line demand curve

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18
Q

At [………] prices, a reduction in price will have an elastic price response.

A

High

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19
Q

At [….] prices, a reduction in prices will lead to a rise in total revenue.

A

Lower

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20
Q

Demand is price [……….] at lower prices

A

Inelastic

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21
Q

What is the Percentage Change Equation?

A

(New Value - Old Value) / Old Value

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22
Q

What can we say about the elastic part of the Demand curve?

A

If firms lower their prices then total revenue increases and if they raise their prices total revenue falls

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23
Q

What can we say about the inelastic part of the Demand curve?

A

If the firm lowers prices then it will cause a fall in revenue and if the firm raises prices then it will cause a rise in revenue

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24
Q

What is meant by Short Run Costs?

A

The time period in which at least on factor of production (land, labour, capital and enterprise) is fixed - it cannot be changed even if there is a change in demand.

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25
Q

What are Long Run Costs?

A

The time period in which all factors of production are variable

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26
Q

What are the explanation for long run and short run costs?

A

Economies and Diseconomies of scale

27
Q

What are Fixed Costs?

A

Costs that do not vary with output

28
Q

What are Variable Costs?

A

Costs that vary with output

29
Q

What is the difference between the time scale, short and long run, if Fixed and Variable Costs

A

Fixed Costs only happen in the long run

Variable Costs happen both in the long and short term

30
Q

What are Fixed Costs also known as?

A

Overheads

31
Q

What are Total Fixed Costs and Total Variable Costs together known as?

A

Total Costs

32
Q

How are Average Fixed Costs calculated?

A

Fixed Costs / Output

33
Q

What will happen to Average Fixed Costs as Output increased?

A

Average Fixed Costs will continue to fall because the cost is being spread across a greater output

34
Q

What is the Average Variable Cost Equation?

A

Variable Costs / Output

35
Q

Question - What is the Average Variable Cost of a Firm that’s total variable cost £5000 and it produces 100 units?

A

AVC = £5,000 / 100 = £50 per unit

36
Q

How do you calculate the average total cost? (AC)

A

Average Fixed Cost + Average Variable Cost

Or

Total Cost / Quantity Produced

37
Q

Define Average Costs.

A

Average costs per unit of output

38
Q

Define Marginal Cost.

A

Change in total costs when one more unit of output is produced

39
Q

Marginal Cost is the Gradient of which curve?

A

Total Cost curve

40
Q

What is unusual about the Marginal Cost?

A

Marginal Costs always goes through the minimum point of the average variable cost and average total cost curves

41
Q

What happens to the gap between average costs and average variable costs as output rises?

A

It gets smaller

42
Q

Explain the shape of the Average Cost Curve?

A
  • Average costs start relatively high, because at low levels of output total costs are dominated by the fixed cost.
  • Average total cost then declines, as the fixed costs are spread over an increasing quantity of output
  • But as output expands further, the average cost begins to rise because of diminishing returns
43
Q

What is Economies of Scale?

A

A fall in long-run average costs as output increases

44
Q

What is Financial Economies of scale?

A

As a firm grows, it is better to be able to access loans at low costs. So they get better rates of interest

45
Q

What is Rick Bearing Economies of Scale?

A

As a firm expands, it is better able to develop a range of products and a wider customer base to spread risk and minimise the effect of any downturn

46
Q

What is Marketing Economies of Scale?

A

A large firm can spread its advertising and marketing budget over a large output and it can purchase its inputs in bulk at negotiated discounted prices if it has sufficient negotiation power in the market.

47
Q

What is Managerial Economies of Scale?

A

As a firm expands, it is in a position to employ a specialist managers in finance etc therefore increase productivity and decrease long-run average costs

48
Q

What is Increased Dimensions Economies of Scale?

A

Increasing the amount transport vehicles can carry

49
Q

Does economies of scale relate to the long or short run?

A

Long run only (Only when all factors are variable in the short run)

50
Q

What are Internal Economies of Scale?

A

Occur when an individual firm expands

51
Q

What are some examples of Internal Economies of Scale (Already Covered) ?

A 
Financial Economies
Risk-Bearing Economies
Marketing Economies
Managerial Economies
Increased Dimensions
52
Q

What is External Economies of Scale?

A

Have an impact on the entire industry.

53
Q

Examples of External Economies of Scale?

A
  • Industry may benefit as a result of innovations produced by other firms causing firm average costs to fall
  • Retailers close to each other benefit from the development new roads and transport links
54
Q

What is Diseconomies of Scale?

A

An increase in long-run average costs as output increases, often caused by managerial difficulties

55
Q

When may a firm experience Diseconomies of scale?

A

If it grows too large and moves beyond its minimum efficient scale

56
Q

Examples of actions that can cause diseconomies of scale?

A
  • Firm merges with another
  • Firm grows internally and lacks management experience
  • ## Lack of co ordination between departments
57
Q

Derive how the long-run average cost curve is formed?

A

It is made up of many short-run average cost curves joined together at their lowest points

58
Q

In the short run how many factors are fixed?

A

At least one

59
Q

In the long run how many factors are fixed?

A

NONE

60
Q

Do Fixed costs change with output?

A

NO

61
Q

When do Fixed Costs actually exist?

A

In the short RUN!

62
Q

What are Fixed Costs?

A

The costs which don’t vary with changing output.

63
Q

What are Variable Costs?

A

Costs which depend on the output produced.

64
Q

What’s is the Total Costs (TC) Equation?

A

Fixed Costs + Variable Costs

Economics - Theme 3 (8 decks)

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