Cost and Revenue Flashcards
What is the definition of a price maker?
A firm that dictates its prices according to the market
What is a price taker?
A firm that has to adjust its prices according to the market
How is total revenue calculated?
Units sold x Price
How is average revenue calculated?
Total revenue/output
How is marginal revenue calculated?
TRn1-TRn
When is total revenue maximised?
When MR=0
What are the four business objectives
Profit maximization, Revenue Maximization, Sales maximization and satisfising
Formula for sales maximisation
AR=AC
Formula for profit maximisation
MR=MC
What satisficing?
Aims for an adequate result
What is normal profit?
Normal profit is the minimum level of profit required to keep a firm in the industry( TR=TC)
When is normal profit achieved?
TR=TC
What is supernormal profit?
TR>TC
What is the shutdown run in the short run?
TR<VC
What is the shutdown in the long run?
TC>TR
What are the two types of economies of scale?
Internal and external
What is internal economies of scale?
measuring a company’s efficiency of production
What is external economies of scale?
External economies of scale are have an effect on the whole industry.
What are diseconomies of scale?
Diseconomies of scale are the cost disadvantages a business incurs
What causes diseconomies of scale?
Diseconomies of scale happen when a company grows so large that its costs per unit increase.
How does economies of scale occur?
Economies of scale occur when a company’s average costs decrease as it produces more.
What are the different forms of economies of scale?
Technical: Efficiency from better technology or machinery.
Managerial: Specialized management leading to better organization.
Financial: Lower borrowing costs due to better creditworthiness.
Purchasing: Discounts from buying raw materials in bulk.
Marketing: Spread advertising costs over more units.
What are the types of diseconomies of scale?
Managerial Issues: Difficulty in managing a larger workforce and complex operations.
Communication Problems: Information gets distorted as it moves through layers of management.
Motivational Issues: Employees may feel less connected in a larger company, reducing productivity.
Bureaucracy:
When a firm is a price taker , and demand is perfectly elastic , what does price equal to?
MR and AR.
=>each unit is sold at the same market price.
