3.3 Revenues, costs and profits Flashcards
what is revenue?
income from selling goods and services
total revenue = quantity x price
what is marginal revenue?
the change in revenue from selling one extra unit
= change in total rev/change in quantity
what is average revenue?
price per unit = total revenue/quantity
what are price takers?
no control over price and must accept what the price set by the market is
- operate in highly (perfect) competitive markets, price-taking firms stay horizontal as the price doesn’t need to decrease to gain sales
- perfectly elastic demand curve, taking firms
what are price makers?
have the ability/power to set their own prices for the goods and services they sell
- happens in all imperfectly competitive markets
- demand curve is downward sloping
what are fixed costs?
costs do not vary at all
eg
- consulting fees
- rental costs
- fixed salaries
what are variable costs?
cost that relate directly to the production or sale of a product.
eg
- basic raw materials
- packaging costs
- wage costs
how do you calculate total costs?
total fixed costs + total variable costs
how do you calculate marginal costs?
change in total cost/change in total quantity
how do you calculate average costs?
total Cost/output
what is marginal product?
the additional output produced when an extra worker (or other factor of production) is employed
what is the average product (same as productivity)?
total output/total no. of workers
what are diminishing returns?
increasing input after an optimal capacity has been reached (only happens in short run)
- at least one production variable is kept constant, such as labour or capital. ➡️ eventually an increase in the input will result in smaller increases in output
- explains the shape of the SRAC curve
what causes shifts in the short term cost curve?
- changes in unit cost of production
- a fall in the exchange rate
- technological advancements
- entry of new products into the market
- favourable weather conditions
- taxes, subsidies and government regulations
how does a rise in fixed costs affect the supply curve?
costs will only shift the AC curve and not the MC curve; a change in variable costs will shift both
- upward shift in AC
how can the govt affect businesses fixed prices?
- changed in VAT
- environmental taxes
- changes in market labour intervention, minimum wage
- govt subsidies targeting producer
in the short run what is the marginal product curve?
at least one factor of production is fixed, when more and more variable factors are added eventually less extra will be produced with the addition of the extra variable factor of production
what are economies of scale?
advantages that arise for a firm because of its large size, or scale of operation ➡️ a fall in average costs
examples of internal economies of scale?
- purchasing bulk
- technical
- managerial
- marketing
- financial options avaliable
- risk bearing
- social and welfare