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Economics theme 3 > 3.3 revenues, costs and profits > Flashcards

3.3 revenues, costs and profits Flashcards

1
Q

What is the calculation for total revenue

A

selling price x quantity sold

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2
Q

What is the calculation for average revenue

A

Total revenue / quantity sold

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3
Q

What is marginal revenue

A

The extra revenue received from the sale of an additional unit

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4
Q

what is perfect competition

A

a market structure where individual firms have no market power due to the amount of competition and are unable to influence the price

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5
Q

What is imperfect competion?

A

A market structure where firms do have some market power and can influence prices e.g. monopolies, oligopolies

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6
Q

what is the calculation for MR

A

change in TR / change in Q

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7
Q

What does the term price taker refer to?

A

Firms that have no market power and are unable to influence the price

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8
Q

What does the term price maker refer to

A

A firm with market power that is able to manipulate prices in order to change demand

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9
Q

What are fixed costs

A

Costs that DO NOT change with the level of output

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10
Q

What are variable costs?

A

Costs that DO change with the level of output

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11
Q

What are marginal costs?

A

The cost of producing an additional unit of output

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12
Q

What is the formula for total costs

A

total fixed costs = total variable costs

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13
Q

What is the formula for total variable costs

A

variable cost x quanity

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14
Q

What is the formula for average total cost

A

Total cost / quantity

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15
Q

What is the formula for average fixed cost

A

total fixed costs / quantity

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16
Q

What is the formula for average variable costs

A

Total variable costs / quantity

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17
Q

What is the formula for marginal cost

A

change in total cost / change in quantity

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18
Q

When does a short run cost curve occur

A

When at least one factor of production is fixed

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19
Q

When does a long run cost curve occur

A

When all factors of production are variable

20
Q

What is marginal product of labour (cost curve) (MP)

A

change in output that results from adding an additional unit of labour

21
Q

What is the law of diminishing marginal productivity (cost curve)

A

in the short run as more of a variable factor is added to fixed factors there will initially be an increase in productivity. However, a point will be reached where adding additional units begins to decrease productivity due to the relationship between labour and capital

22
Q

When does increasing returns to scale occur

A

when an increase in inputs leads to a larger than proportional increase in output

23
Q

When does decreasing returns to scale occur

A

when an increase in the quantity of inputs leads to a less than proportional increase in the quantity of output

24
Q

What is meant by financial economies of scale

A

Large firms often receive lower interest rates on loans than smaller firms as smaller firms are perceived as less risky

25
Q

What is meant by Managerial economies of scale

A

When large firms can employ specialist managers who are more efficient at certain tasks and this lowers average costs

26
Q

What is meant by marketing economies of scale

A

Large firms spread the cost of advertising over a large number of sales and this reduces average costs

27
Q

What is meant by purchasing economies of scale

A

When large firms buy raw materials in greater volumes and receive a bulk purchase discount which lowers average costs

28
Q

What is meant by technical economies of scale

A

When a firm is able to use its machinery at a higher level of capacity due to the increased output. Therefore, spreading the cost over more units and decreasing Average costs

29
Q

What is meant by risk-bearing economies of scale

A

When a firm is able to spread the risk of failure by increasing its number of products

30
Q

What is meant by management diseconomies of scale

A

When managers work more in their self interest that in the interest of the firm

31
Q

What is meant by communication diseconomies of scale

A

When a firm with multiple layers of management and perhaps in multiple geographic locations , struggle to communicate quickly and efficiently. Therefore, leading to slow responses and an increase in average costs

32
Q

What is meant by geographical diseconomies of scale

A

When a firm has widespread bases of operation and this leads to logistical and communication challenges which raise average costs

33
Q

What is meant by cultural diseconomies of scale

A

When a firm expands into foreign markets in which workers have very different cultural work/ productivity norms which can raise the average cost

34
Q

What is the minimum efficient scale

A

The lowest cost point on a long run total cost curve. It represents the lowest possible cost per unit that a firm in the industry can achieve in the long run

35
Q

What are internal economies of scale?

A

occur as a result of the growth in the scale of production within the firm

36
Q

What are examples of internal economies of scale?

A

Financial economies
marketing economies
managerial economies
purchasing economies
technical economies
risk-bearing economies

37
Q

What are examples of sources of external economies of scale

A

Geographic cluster
Transport links
Skilled labour
Favorable legislation

38
Q

What is external economies of scale?

A

When there is an increase in the size of the industry which the firm operates . The firm is able to benefit from lower average costs generated by factors outside of the firm

39
Q

What is the source of external economies of scale: geographic cluster

A

As an industry grows, ancillary firms move closer to major manufacturers to cut costs and generate more business, This lowers the average cost

40
Q

What are ancillary firms?

A

firms that supply and provide materials/services to larger firms

41
Q

What is the source of external economies of scale: Transport links

A

Improved transport links developing around growing industries allow for people to get to work easier and improve transport logistics.

42
Q

What is the source of external economies of scale: skilled labour

A

An increase in skilled labour can lower the cost of skilled labour , therefore decreasing average costs

43
Q

What is the source of external economies of scale: favourable legislation

A

government may support certain industries in order to achieve their wider objectives. for example subsidies which decrease the average cost

44
Q

what are explicit costs?

A

costs which have to be paid

45
Q

What are implicit costs

A
46
Q
A

Economics theme 3 (3 decks)

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