Chapter 10- Costs, Revenue & Profit Flashcards
Fixed Costs:
Costs that don’t vary with ouput,
e.g. rent of factory.
Variable Costs:
Costs that don’t vary witn production,
e.g. wages.
Total Costs:
Fixed Costs + Variable Costs
Average Costs:
Total Costs / Quantity Produced
Average Cost is the cost per item.
Short Run Average Cost:
- U-shaped curve
- specialisation
Average Fixed Costs:
Fixed Cost / Quantity Produced
AFC Curve:
Average Variable Costs:
Variable Costs / Quantity Produced
Revenue:
Price x Quantity Produced
Profit:
Revenue - Total Cost
Normal Profit:
The minimum profit necessary to justify staying in bysiness in the long run.
Supernormal Profit:
Any profit inexcess of normal profit.
The Short Run:
A period of time sufficiently short, that at least one factor of production is fixed in quantity,
e.g. factory size
The Long Run:
A period of time sufficiently long, that all factors of production are variable.
THE LAW OF DIMINISHING MARGINAL RETURNS:
States that as you add more and more of a variable factor of production, e.g. wages, to a fixed factor, e.g. rent, at some point, the increase in output caused by the last unit of the variable factor begins to fall.
