Chap 22 Flashcards
Define total cost
Total amount that has to be spent on factors of production used to produce a product
Define Average Total Cost
Total cost divided by output
Define fixed costs
Costs which do not change with output in the short run
Define average fixed cost
Total fixed cost divided by output
Define variable costs
Costs that change with output
Total cost formula
Total fixed cost +total variable cost
Why are all costs variable in the long run?
All FOP can be altered
Define long run
The time period when all factors of production can be changed and all costs are variable
Define revenue
Money received by firms from selling their products
Define price
Amount of money to be given to obtain a product
Define average revenue/ price per unit
Total revenue/ quantity sold
Difference between revenue tables of perfectly competitive firms and monopolies
In PCF: average revenue (price per unit) stays the same
In Monopoly: average revenue falls as the quantity sold increases; total revenue rises till its peak and then falls
Objectives of firms
- Survival
- Growth
- Social welfare
- Profit satisficing
- Proft maximisation
Define Profit satisficing
Sacrificing some profit to achieve other goals
e.g. improve staff facilities
Define Proft maximisation
making as much profit as possible
Advantages of firms growing
- Raise finance easily
- Buy raw materials at a discounted rate
- Pay and status rises as company rises
- Greater job security
- Merging growth will lead to competition reduced
Define profit
When the revenue earned by the firm is greater than the costs incurred by it
Revenue- costs
Total profit formula
Total revenue- total cost (positive)
Profit per unit formula (aka profit margin)
Avg revenue / avg total cost
Benefits of rising profits
Incentive to undertake production
Provide more finance to update capital
Easier to obtain external finance
Easier to recruit top managers
Consequences of falling profits
Cut back production
Cease production
