3.3.1-3.3.3 Cost Revenue, Economies Of Scale Flashcards
Define total revenue
Price times quantity
Define normal profit
When total revenue equals total cost, minimum level of profit required to keep the firm in the market
Define supernormal profit
Excess profit over and above normal profit
Define fixed cost
Cost that does not change in the short run
Define variable cost
Cost directly related to the level of output produced
Define total cost
Total Variable cost + total fixed cost
Define marginal returns
Extra output gained from adding an additional unit of input to the production process.
Define law of diminishing marginal returns
Law states that as you add variable resources to fixed resources, the additional output will eventually decrease.
Define economies of scale
Occurs where larger firms have lower long run average costs of production as a result of increase output and scale of production.
Reasons of internal economies of scales
- Purchasing economies
- Risk-based economies
- Marketing economies
- Technical economies
- Managerial economies
- Financial economies
Reasons of external economies of scale
- Well-developed Infrastructure (reduced transportation cost)
- Reputation and specialisation of a zone
- Availability of labour from universities
- Research and development
Define diseconomies of scale
Where LRAC of production begins to rise as firm’s output grows.
What are diseconomies of scale factors
- Poor coordination 2. Poor control 3. Poor communication.
Define minimum scale of production
The optimum level of output if it allows the firm to make high profit level.
