3.3 Revenues, costs and profits Flashcards
3.3.1 A)
Profit formula
Profit = revenue - costs
3.3.1 A)
What is revenue
Total income of a firm from selling goods and servies
3.3.1 A)
Total revenue formula
Price * qty
3.3.1 A)
Average revenue formula
(total revenue /qty )
3.3.1 A)
Marginal revenue formula
change in TR / change in Qty
3.3.1 B)
What is a price maker
Firm that has total control over price this is due to imperfect competion
3.3.1 B)
What is a price taker
Firm with no pricing power who acceptts the current marker price , each unit sold at same price for all firms due to perfect competition
3.3.2 A)
What is a fixed cost
costs that do not var with opt
3.3.2 A)
What is a variable cost
Costs that vary with output
3.3.2 A)
What is a sunk cost
Cost required to start up the firm cannot be recovered if the firms closes
3.3.2 A)
Formula
total costs
marginal costs
total = varable + fixed
marginal = change in total cost / change in opt
3.3.2 B)
Law of diminishing returns
If ^ in variable factors like labour total output will increase and then it each additonal unit will diminish SR
3.2.2 C)
Why is SRAC a U shape
Due to law of diminishing returns
3.2.2 C)
Why is LRAC _/ shaped
Due to (dis)economies of scale
3.2.2 C)
Relationship between SR and LR AC curves
LRAC is either equal to or below relevant SRAC the firm may initally be set up to produce a certain amt effectivly they will cause ^ SRAC due to law of diminishing return due to fixed factors. In LR all variable.
3.2.2 C)
Shifts in LRAC curve
A shift can occur to exteme (dis)economies that can effect cost of production
3.2.2 C)
Movements in LRAC curve
Due to change in output which change AC to internal (dis)economies of scale
3.2.2 C)
Places on LRAC curve
LRAC is a boundary representing the min level of AC attanable at any given level of output. Points below LRAC are unattainable and producing above is in eff
3.3.3)
What are economies of scale
Advantages of large scale production that enables a large busniess to produce at a lower avg cost than a small busniess
firm is able to inc turn to scale, an increase in input will lead to a larger increase in output
3.3.3)
What are diseconmies of scale
Disadvantages that arise in large busniess that reduce eff causing avg cost to increase.
decreasing return to scale, output increase by a smaller scale then the input
3.3.3 A)
What is a technical economy
Arises as a result of what happened to prodcution process
Ex: ^ productivity, v costs, innovation
3.3.3 A)
What is specialisation
Efficenticy specicaled worker and machinery
3.3.3 A)
^ size of area
Size of room inc by 2x doesnt 2x the costs of running
3.3.3 A)
Investment in capital
some process require item of machinary needed a large firms
