Chapter 9 - Production & Cost Flashcards
What is Average Revenue?
Average Revenue (AR) = Total revenue (TR or PQ) / quantity sold
AR = PQ / Q
What is Marginal Revenue? (MR)
The additional revenue earned by selling an additional unit of a product.
MR = change in TR / change in Q
What is a short run?
It is a period during which at least one of the inputs are fixed.
What is a long run?
Period in which all inputs are variables
Economists consider implicit costs. What is this?
The opportunity costs which are not reflected in monetary payments. eg. Self-employed resources.
What are negative externalities?
External costs (eg heavy vehicles damage roads)
What is normal profit?
The best return that the firm’s resources could earn elsewhere and forms part of opportunity cost.
What is economic profit?
Diff between total revenue and total implicit and explicit costs
Economic profit is also called ?
Excess profit
Abnormal profit
Supernormal profit
Pure profit
What does the Law of Diminishing Returns state?
As more of a variable input is combined with 1 or more fixed inputs in a production process, points will eventually be reached where 1st the marginal product, then the average product and finally the total product start to decline.
AP and MP curves are shaped like:
Inverted U’s
MP reaches its maximum before…
AP reaches its maximum
MP equals AP where?
At the maximum point of AP
What is a firm’s Total Revenue? TR
TR is the total value of sales.
= Price of product X quantity sold
TR = P x Q
How do you calculate Average Fixed Cost? AFC
AFC = TFC / TP
