3.3 Revenues costs and profits Flashcards
Total Revenue
The total revenue earned from all the output a firm sells. TR= P x Q.
Average Revenue
Revenue per unit sold. AR = TR / Q (which must also = P).
Marginal Revenue
The additional revenue a firm makes when it sells one more unit of the product. △TR / △Q
Fixed Costs
Costs that do not change (vary) with the output of the firm.
Variable Costs
Cost that change (vary) with the output of the firm. If you make greater quantities you have to pay more of these costs.
Total Costs
The total cost of all the output (quantity) produced by a firm.
TC = TFC + TVC
Average Costs
Cost per unit. The Total cost of production divided by the quantity the firm produces: AC = TC / Q
Marginal Cost
The cost of the next unit produced or the additional unit produced. Delta TC / Delta Q △TC / △Q
Average variable cost
Variable cost per unit. AVC = VC / Q
Normal profit
The minimum level of profit needed for a company to cover its costs & remain in the market.TR=TC or AR=AC.
Supernormal profit
When a firm makes more than it needs to stay in the market. TR > TC.
Loss
When TC > TR.
Diminishing marginal product
As input increases, output initially increases. Over time the amount of additional output gained from from an additional worker/FofP will fall.
Economies of Scale
Increasing the scale of production leads to lower average costs per unit.
Diseconomies of Scale
Increasing the scale of production leads to higher average costs per unit. This is when large firms become inefficient.
