Costs and Revenues

Question 1

what is the short run

Answer 1

atleast one fixed factor of production

Question 2

what is the long run

Answer 2

all factors of production are variable

Question 3

examples of fixed costs

Answer 3

rent
salaries
interest on loans

Question 4

examples of variable costs

Answer 4

wages
utility bills
raw material costs

Question 5

formula for TFC

Answer 5

TC - TVC
or
AFC x Quantity

Question 6

formula for AFC

Answer 6

TFC / Quantity
AC - AVC

Question 7

formula for AVC

Answer 7

TVC / Quantity
AC - AFC

Question 8

shape of TFC graph

Answer 8

horizontal line

Question 9

shape of AFC

Answer 9

downwards sloping

Question 10

shape of AVC / what does it do

Answer 10

U shape
falls then rises

Question 11

why does AVC fall then rise

Answer 11

falls until law of diminishing returns kicks in

Question 12

what is the law of diminishing returns

Answer 12

when adding an additional factor of production results in a smaller increase in output than the previous addition

Question 13

formula for MP

Answer 13

change in TP / change in quantity

Question 14

formula for AP

Answer 14

TP / Quantity

Question 15

shape of MP

Answer 15

rises then falls

Question 16

shape of AP

Answer 16

rises then falls

Question 17

what must the MP graph do

Answer 17

cut AP at its highest point

Question 18

why does MP originally rises

Answer 18

as more workers are hired, they begin to specialise and therefore become more productive.
under-utilised fixed factors of production begin to be used more efficiently

Question 19

why does MP fall

Answer 19

due to the law of diminishing returns
the fixed factors of production have become a constraint on production so efficiency decreases

Question 20

shape of TP

Answer 20

rises then falls
maximised when MP is 0

Question 21

when is TP maximised

Answer 21

when MP is 0

Question 22

formula for MC

Answer 22

change in total cost / change in quantity

Question 23

formula for AC

Answer 23

TC / Quantity
or
AFC + AVC

Question 24

shape of MC

Answer 24

falls then rises
cuts AC at AC’s lowest point

Question 25

shape of AC

Answer 25

falls then rises u shape is cut by MC at its lowest point

Question 26

when does MC cut AC

Answer 26

at its lowest point

Question 27

why does MC fall

Answer 27

because as MP rises, due to specialisation and utilisation of factors of production, MC falls

Question 28

why does MC rise

Answer 28

the law of diminishing returns kicks in as MP falls meaning MC rises as the fixed factors of production constraints production

Question 29

shape of TC curve

Answer 29

like the tan graph

Question 30

shape of TVC curve

Answer 30

like the tan graph

Question 31

shape of TFC

Answer 31

horizontal line

Question 32

why do the TVC and TC curves become steeper

Answer 32

they go from increasing returns to labour TO decreasing returns to labour

Question 33

shape of LRAC

Answer 33

Multiple U shapes Downward sloping

Question 34

why does the LRAC curve fall

Answer 34

economies of scale

Question 35

why does the LRAC curve plateau

Answer 35

constant returns to scale

Question 36

why does the LRAC curve rise

Answer 36

diseconomies of scale

Question 37

formula for TR

Answer 37

P x Q

Question 38

formula for AR

Answer 38

TR / Q = P

Question 39

formula for MR

Answer 39

change in total revenue / change in total quantity

Question 40

shape of AR in perfect competition

Answer 40

horizontal

Question 41

shape of TR in perfect competition

Answer 41

linear

Question 42

shape of AR in imperfect competition

Answer 42

downwards sloping from left to right

Question 43

shape of MR in imperfect competition

Answer 43

downwards sloping line twice as steep as AR

Question 44

shape of TR in imperfect competition

Answer 44

rises then falls when MR is at 0

Question 45

what is average revenue (AR) the same as on a graph

Answer 45

demand

Question 46

when is total revenue maximised

Answer 46

when MR = 0

Question 47

what causes a change in price/profit levels

Answer 47

fixed costs variable costs demand

Question 48

what will a change in fixed costs shift

Answer 48

AC

Question 49

what will a change in variable costs shift

Answer 49

AC and MC

Question 50

what will a change in demand shift on costs and revenues diagram

Answer 50

AR and MR