Firms Flashcards
1
Q
Total Costs
A
Fixed Costs + Variable Costs
2
Q
Average Costs
A
Total Costs / Quantity
3
Q
Marginal Costs
A
ΔTotal Costs / ΔQuantity
4
Q
Total Revenue
A
Price x Quantity
5
Q
Average Revenue
A
Total Revenue / Quantity = Price
6
Q
Marginal Revenue
A
ΔTotal Revenue / ΔQuantity
7
Q
Profit maximisation
A
MR = MC
8
Q
Revenue maximisation
A
MR = 0
9
Q
Profit Satisficing
A
10
Q
Short term shutdown
A
Average Revenue < Average Variable Costs
(Increasing production would lead to a greater increase in AVC than AR, leading to subnormal profits
11
Q
Long term leaving industry
A
Average Revenue < Average Costs
(Since long term, all fixed costs become variable; prolonged sub-normal profits will lead to firm leaving the industry)
12
Q
Fixed Costs
A
- Do not vary with output level
- Paid even when output level is zero
- Since all factor inputs are variable in the long run, all fixed costs become variable in the long run
- Eg rental, fixed monthly wages
13
Q
Variable Costs
A
- Vary with output level
- VC = 0 when output level is zero
- Eg cost of raw materials, hourly wages
14
Q
A
