3.3 Revenue And Profit Flashcards
What is meant by total revenue and how is it calculated
Total revenue is the revenue received from the sale of a given level of output
Price x Quantity sold
What is meant by average revenue and how is it calculated
This is the average receipt per unit
Total revenue / Quantity sold
What is meant by marginal revenue
This is the extra revenue earned from the sale of one extra unit
Difference between total revenue at different levels of output
How would total revenue look on a diagram
How is average revenue shown on a diagram
What is meant by accounting profit
This is calculated by the total monetary revenue minus total costs
It is higher than economic profit
What is meant by economic profit
This considers the opportunity cost of production in addition to monetary costs
This is lower than accounting profit
What is meant by normal profit
This is the minimum required to keep entrepreneurs supplying their enterprise
Covers the opportunity cost of investing funds Into the firm
When total revenue = total costs
Also included as a cost of production
What is meant by supernormal profit
This is the profit above normal profit
Exceeds the value of opportunity cost of investing funds into the firm
TR > TC
What is meant by losses
A firm makes a loss when they fail to cover their total costs
Why are supernormal profits maximised at the level of output where MC = MR
Profit maximisation is when MC = MR meaning that each extra unit produced gives no extra loss or no extra revenue
Why might a firm choose to profit maximise
Provides greater wages and dividends
Retained profits is a cheap source of finance compared to high paying loans
Good in the short run as it fulfils the interests of owners and shareholders
Good in long run as consumers don’t like rapid price changes. This can provide stable price and output
What does the full revenue and profit diagram look like
