costs Flashcards
How do you calculate totalrevenue?
Price x quantity sold
Marginal revenue
The extra revenue a firm earns from the sale of one extra unit. When marginal revenue us 0, total revenue is maximised.
Where on a diagram is marginal revenue shown?
MR = 0 on the revenue diagram directly below the midpoint of the AR curve.
Average revenue
The average receipt per unit. TR / quantity sold AKA The price each unit is sold for.
What does the AR curve look like in markets when firms are price makers?
The AR curve us downward sloping.
How do you calculate total cost?
Total costs = Total variable costs + total fixed costs
How do you calculate average total costs
total costs / quantity produced
How do you calculate average fixed costs
total fixed costs / quantity
How do you calculate average variable costs
total variable costs / quantity
Marginal costs
How much it costs to produce one extra unit. Change in TC / Change in Quantity
The law of diminishing marginal productivity
Adding more units of a variable input to a fixed input, increases output at first.
However, after a certain number of inputs are added, the marginal increase of output becomes constant.
Then, when there is an even greater input, the marginal increase in output starts to fall.
Draw a diagram to show the relationship between Short run and long run average cost curves.
The lowest point is the minimum efficient scale. This is where the optimum level of output is since costs are lowest.
What are the 6 different types of internal economies of scale?
Purchasing - discount bulk buying
Fianacing - rising money/borrowing
Marketing - advertisment
Managerial - account - HR - marketing team
Technical - capital - operational
External economies of scale
Deregulation - lower administration
Transport cost - roads
Technology - apple pay
External economies of scale
2
These occur within an industry when it gets larger. Eg local roads might be improved, so transport costs for the local industries will also fall. Also there might be more training facilities or more research and development, which will also lower average costs for firms in the local area.
What are the 3 types of diseconomies of scale?
Control- becomes harder to monitor how productive the workforce is, as the firm becomes larger.
Coordination- It is harder and complicated to coordinate every worker, when there are thousands of employees.
Communication- Workers may start to feel alienated and excluded as the firm grows. This could lead to falls in productivity and increases in average costs, as they lose their motivation
Normal profit
The minimum reward required to keep entrepreneurs supplying their enterprise in the long run. It covers the opportunity cost of investing funds in the the firm and not elsewhere.
