3.7 Firms' costs, revenues, and objectives Flashcards
What are fixed costs
Costs that don’t change regardless the firm’s output
What are variable costs
Costs that are change as level of output changes
What is total cost formula
Total fixed costs + Total variable costs
What is total revenue
Price per unit * number of units
What is average revenue
Total revenue / number of units sold
How to calculate profit or loss
Total revenue - Total cost
What is the break even level of output
Level of output at which Total cost curve and total revenue curve intersect and profit = 0
How to calc avg cost
Total cost/total output
How to maximise profit
increase revenue (increasing output or price) minimize costs
How to calc total varialbe cost
Variable cost per unit * number of units produced
Describe the curve of the average cost curve
Average cost of each unit of a good or service will tend to fall with the volume produced, simply because fixed costs remain the same but their burden is spread over a much larger output.
After a point, average costs may start to rise again because it can become more difficult and expensive to increase output further.
Profit/loss per unit
average revenue - average cost
Objectives of firms
Profit maximisation
Growth
Survival
Social welfare and environmental objectives
What are economies of scale
Cost advantages of larger firms compared to smaller firms
Who and why is survival most imp for
Most imp objective for newly created firms. Set up costs can be high
