3.3 Revenue And Profit Flashcards

1
Q

What is meant by total revenue and how is it calculated

A

Total revenue is the revenue received from the sale of a given level of output

Price x Quantity sold

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2
Q

What is meant by average revenue and how is it calculated

A

This is the average receipt per unit

Total revenue / Quantity sold

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3
Q

What is meant by marginal revenue

A

This is the extra revenue earned from the sale of one extra unit

Difference between total revenue at different levels of output

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4
Q

How would total revenue look on a diagram

A
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5
Q

How is average revenue shown on a diagram

A
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6
Q

What is meant by accounting profit

A

This is calculated by the total monetary revenue minus total costs

It is higher than economic profit

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7
Q

What is meant by economic profit

A

This considers the opportunity cost of production in addition to monetary costs

This is lower than accounting profit

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8
Q

What is meant by normal profit

A

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

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9
Q

What is meant by supernormal profit

A

This is the profit above normal profit

Exceeds the value of opportunity cost of investing funds into the firm

TR > TC

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10
Q

What is meant by losses

A

A firm makes a loss when they fail to cover their total costs

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11
Q

Why are supernormal profits maximised at the level of output where MC = MR

A

Profit maximisation is when MC = MR meaning that each extra unit produced gives no extra loss or no extra revenue

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12
Q

Why might a firm choose to profit maximise

A

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

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13
Q

What does the full revenue and profit diagram look like

A
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