Chapter 7 Flashcards
MC = Marginal Cost
It is the amount by which the total cost increase when one extra unit of a product is produced.
∆Total Cost (TC) ÷ ∆ Output (Q) = MC
MR = Marginal Revenue
Marginal revenue refers to the extra amount of revenue earned when an additional (extra) unit
of a product is sold.
∆TR ÷∆ Q = MR
AC = Average Cost
Total Fixed Cost + Total Variable Cost = Total Cost
Total Cost ÷ Total output = AC.
AR = Average Revenue
Average revenue refers to the amount the enterprise earns for every unit sold.
TR ÷ Q = AR
Because TR = PQ,
it follows that AR = PQ ÷ Q
therefore, AR = Price
Q = Quantity
The extent, size, or sum of countable or measurable discrete events, objects, or phenomenon,
expressed as a numerical value.
AVC = Average Variable Cost
Total Variable Cost divided by number of units produced.
Total Variable Cost ÷ Total output = AVC.
P = Price
A value that will purchase a definite quantity, weight, or other measure of a good or service.
SMART
Specific
Measurable
Agreed
Realistic
Time specific
Short run
- It is that period where at least one input is fixed.
- The enterprise can increase its outputs by increasing its variable factors.
Main objectives of the business:
- Survival
- Profit maximization
- Revenue Maximization
- Sales Maximization
Sales maximising
- Sales refer to the number of goods or services sold.
- Reaching as many customers as possible can increase the size and
popularity of the business although the profit may fall if lower prices have
to be charged to reach this objective.
Profit maximising
- Making as much profit as possible.
- Profit is the difference between the revenue and the cost of the business.
Survival
- Initially the objective of the firm will be to merely survive.
- New firms face constraints that could hamper their progress and success.
Revenue maximising
- Some businesses have very high costs
- If they have a very large workforce, large business premises, etc.
Long run
- It is that period where both fixed factors and variable factors can be changed.
