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Micro Year 2 > Costs and Revenues > Flashcards

Costs and Revenues Flashcards

1
Q

what is the short run

A

atleast one fixed factor of production

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2
Q

what is the long run

A

all factors of production are variable

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3
Q

examples of fixed costs

A

rent
salaries
interest on loans

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4
Q

examples of variable costs

A

wages
utility bills
raw material costs

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5
Q

formula for TFC

A

TC - TVC
or
AFC x Quantity

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6
Q

formula for AFC

A

TFC / Quantity
AC - AVC

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7
Q

formula for AVC

A

TVC / Quantity
AC - AFC

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8
Q

shape of TFC graph

A

horizontal line

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9
Q

shape of AFC

A

downwards sloping

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10
Q

shape of AVC / what does it do

A

U shape
falls then rises

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11
Q

why does AVC fall then rise

A

falls until law of diminishing returns kicks in

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12
Q

what is the law of diminishing returns

A

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

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13
Q

formula for MP

A

change in TP / change in quantity

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14
Q

formula for AP

A

TP / Quantity

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15
Q

shape of MP

A

rises then falls

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16
Q

shape of AP

A

rises then falls

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17
Q

what must the MP graph do

A

cut AP at its highest point

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18
Q

why does MP originally rises

A

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

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19
Q

why does MP fall

A

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

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20
Q

shape of TP

A

rises then falls
maximised when MP is 0

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21
Q

when is TP maximised

A

when MP is 0

22
Q

formula for MC

A

change in total cost / change in quantity

23
Q

formula for AC

A

TC / Quantity
or
AFC + AVC

24
Q

shape of MC

A

falls then rises
cuts AC at AC’s lowest point

25
Q

shape of AC

A

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

26
Q

when does MC cut AC

A

at its lowest point

27
Q

why does MC fall

A

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

28
Q

why does MC rise

A

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

29
Q

shape of TC curve

A

like the tan graph

30
Q

shape of TVC curve

A

like the tan graph

31
Q

shape of TFC

A

horizontal line

32
Q

why do the TVC and TC curves become steeper

A

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

33
Q

shape of LRAC

A

U shape
falls, plateaus, rises

34
Q

why does the LRAC curve fall

A

economies of scale

35
Q

why does the LRAC curve plateau

A

constant returns to scale

36
Q

why does the LRAC curve rise

A

diseconomies of scale

37
Q

formula for TR

A

P x Q

38
Q

formula for AR

A

TR / Q = P

39
Q

formula for MR

A

change in total revenue / change in total quantity

40
Q

shape of AR in perfect competition

A

horizontal

41
Q

shape of TR in perfect competition

A

linear

42
Q

shape of AR in imperfect competition

A

downwards straight line

43
Q

shape of MR in imperfect competition

A

downwards straight line twice as steep as AR

44
Q

shape of TR in imperfect competition

A

rises then falls when MR is at 0

45
Q

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

A

demand

46
Q

when is total revenue maximised

A

when MR = 0

47
Q

what causes a change in price/profit levels

A

fixed costs
variable costs
demand

48
Q

what will a change in fixed costs shift

A

AC

49
Q

what will a change in variable costs shift

A

AC and MC

50
Q

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

A

AR and MR

Micro Year 2 (11 decks)

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