3. 7 - Firms Costs and Revenue Flashcards
What are fixed costs?
Costs which do not change with output in the short run.
What are variable costs?
Costs that change with output
What are total costs?
Total costs are the sum of the fixed and variable costs.
How can firms reduce their average costs?
Skilled labour - Firm can recruit workers who have been trained by other firms in industry/ education
Good reputation - an area can gain a reputation for high quantity of production
Favourable legislation - Governments will support certain industries in order to achieve their wider objectives
Geographic Cluster - As an industry grows ancillary firms move closer to major manufactures to cut costs generating more buisness
Improved infrastructure - Improved transport links develop around growing industries in order to help and get people to work and improve the transport logistics
What is revenue?
The money received by firms from selling their products
What are the objectives of firm?
Profit maximisationn
To maximise profits, firms can either increase their sales revenue or decrease their costs
Firms continuously analyse their costs to see if they can reduce them so that profit can be maximised
Growth
Firms with a growth objective often focus on increasing their sales revenue or market share
Firms will also maximise revenue in order to increase output & benefit from economies of scale
A growing firm is less likely to fail
Survival
In the short term, many new firms focus solely on business survival
Once a firm is established, it may then begin to focus on profit maximisation as its new objective
Social welfare
These typically include a focus on climate action & addressing poverty or inequality
