Costs, Revenues And Profit Flashcards
What are the main assumptions behind how free markets operate
Lots of buyers and sellers,
Perfect information
Explain the law of diminishing returns
Past a certain amount of workers, you will be getting diminishing returns due to overcrowding
What are EoS
As output increases, productivity also increases (ie due to specialisation)
What is the link between MP for labour and a firms MC
MC increases when MP for labour decreases
What is the difference between variable and fixed costs
Variable costs: costs that may vary with output, mainly wages
Fixed costs: rent, loan interest. They only exist in SR, and aren’t affected by output
What are internal economies of scale
When costs for an individual firm decrease
How do LR and SR differ in costs
LR all inputs are variable, so no fixed inputs or costs.
SR has fixed costs
Why do diseconomies of scale occur
Coordination may suffer
Monitoring is less effective, as it’s harder to check labour efforts, wastage etc
Harder to communicate decisions
What is profit max
Marginal cost = MR because any MR not at MC has scope to make more profit, or is making less profit because MC > MR so costs are increasing relative to revenue
What is economic profit
Total revenue - sum of explicit and implicit costs
What are external economies of scale
EoS that occurs outside a company but within the same industry and benefits the entire industry
Ie better transport network for the particular industry paid for by govt
