Econ theme 3 - revenue costs and profit Flashcards
Average Revenue formula
Total Revenue / quantity
Average Total Cost Formula
Total cost/quantity
Marginal Cost Formula
change in cost/change in quantity
-extra cost when producing an additional unit of product
Total Cost Formula
total fixed cost + total variable cost
Total Revenue
- price x quantity
Why does the MC curve decrease and then increase after
- increased output = MC decrease because of increased productivity due to specialisation.
- Then MC increases because of decreasing productivity due to diminishing marginal productivity
profit formula
total revenue - total costs
Marginal Revenue
- change in TR / change in output
Short run
at least one FOP is fixed
-Does not change with output (e.g. rent, salaries)
-(fixed and variable costs)
Long Run
-All FOP are variable
-Changes witth output (e.g. ingredients, wages)
-(Variable costs)
Average fixed costs
TFC / Quantity
Average Variable Cost
Total Variable cost / Quantity
Economies of Scale
-Firms get bigger = Average costs decrease
Internal Economies of Scale
-Risk-bearing
-Managerial
-Financial
-Purchasing
-Technical
-Marketing
Internal Diseconomies of Scale
-Alienation
-Bureaucracy
-Communication + control
Profit Maximisation point
- MC = MR
- When a firm is making the most profit they are able to make ??
Revenue Maximisation point
- MR = 0
- ????
External Economies of Scale
When an industry gets bigger the LRAC for all firms in it will decrease
