Costs, Revenues, & Profits Flashcards
What is the formula for average revenue?
Total revenue / quantity
What is marginal revenue?
The extra revenue received from the sale of an additional unit of output
What is the formula for marginal revenue?
Change in total revenue / change in quantity
What is the relationship between average and marginal revenue in perfect competition?
Equal
What is the formula for total variable cost?
Variable cost x quantity
What is the formula for marginal cost?
Change in total cost / change in quantity
What is the short-run?
The period of time in which at least one factor of production is fixed
What is the long-run?
The period of time in which all factors of production are not fixed
What is the marginal product of labour?
The change in output that results from adding an additional unit of labour
What is the law of diminishing marginal productivity?
Up to a point, new labour raises productivity - after this, new labour lowers productivity
What is the relationship between marginal product and marginal cost?
As marginal product increases, marginal cost decreases, and vice versa
What are diseconomies of scale?
Where rising output leads to a rise in long-run average total cost
What are the 6 types of economies of scale?
- Financial (lower interest rates)
- Managerial (specialised managers)
- Marketing (marketing strategies)
- Purchasing (raw material volume)
- Technical (spread machinery costs)
- Risk-bearing (spread risk of failure)
What are the 4 types of diseconomies of scale?
- Management (inefficient managers)
- Communication (bureaucracy)
- Geographical (logistical challenges)
- Cultural (different work cultures)
What is the minimum efficient scale (MES)?
The lowest output at which average costs are the lowest possible
