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Year 2 content: micro > lesson 4 - theory of the firm: revenues > Flashcards

lesson 4 - theory of the firm: revenues Flashcards

1
Q

what’s the equation for revenue?

A

price times quantity

P X Q

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2
Q

what’s the equation for profit?

A

total revenue - total costs

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3
Q

what is the L-shaped LRAC curve associated with?

A

large scale manufacturing

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4
Q

when do we have falling total returns?

A

when marginal returns turn negative

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5
Q

what is total returns?

A

the total amount of output a set of inputs produced

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6
Q

what is revenues?

A

amount a firm earns by selling goods and services in a given time period

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7
Q

what is costs?

A

the expenses that collected in the period of producing goods and services

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8
Q

what are the four factors of production?

A

land
labour
capital
enterprise

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9
Q

what is the production function?

A

the maximum output that can be produced given the inputs

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10
Q

how do you figure out total revenues?

A

average revenues times sales

AR X Sales

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11
Q

how do you figure out average revenues?

A

total revenues divided by sales

sales

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12
Q

what does price equal?

A

price = AR (average revenue)

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13
Q

what should producers do if they have a sensitive PED?

A

it means their demand is elastic

there are substitutes

so do not raise prices

or loss of revenue

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14
Q

when do we have high season?

A

when demand is inelastic (lack of choice)

busy

high prices

= producer sovereignty

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15
Q

when do we have low season?

A

when demand is elastic (choices)

not busy

low prices

= consumer sovereignty

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16
Q

what is consumer sovereignty?

A

when consumers have the power as there’s choice

17
Q

what is producer sovereignty?

A

when producers have power due to lack of choice

18
Q

when demand is inelastic what do firms do?

A

they raise prices to maximise revenues

19
Q

what do firms do when demand is elastic?

A

cut prices to boost demand, clear stock and raise total revenue

20
Q

what does differentiating a product do?

A

promotions which establish brand loyalty to make demand for their product more inelastic

21
Q

what is marginal revenue?

A

the addition to the total revenue from the sale of one more unit

22
Q

how do you figure out marginal revenue?

A

change in total revenue divided by change in output

change in
output

23
Q

what are the four market structures?

A

perfect competition

monopolistic competition

oligopoly

monopoly

24
Q

what is the theoretical market structure?

A

perfect competition

25
Q

what are market structures formed by?

A

barriers to entry

26
Q

how many firms are in all four market structures?

A

perfect competition: many

monopolistic competition: many

oligopoly: 2-4 dominate

monopoly: 1

27
Q

what is the variety of goods like in all four market structures?

A

perfect competition: none

monopolistic competition: some

oligopoly: some

monopoly: none

28
Q

how much control over prices does all four market structures have?

A

perfect competition: none

monopolistic competition: low

oligopoly: high

monopoly: all/complete

28
Q

what’s the barriers to entry and exit like in all four market structures?

A

perfect competition: none

monopolistic competition: low

oligopoly: high

monopoly: complete

29
Q

what should we do when we have excess demand?

A

bid up prices

30
Q

what should we do when we have excess supply?

A

cut prices to clear stock

31
Q

what are the assumptions of perfect competition?

A

homogenous output (all the same with no variety)

many firms

consumers and producers cannot affect the price as its set by the market mechanism

no asymmetric information so perfect consumer and producer knowledge

freedom of entry and exit

consumers can buy as much as they wants and producers can sell as much as they want

32
Q

what is the market mechanism?

A

demand and supply

33
Q

what are the features of AR and MR in perfect competition?

A

perfectly elastic demand

we can sell any quantity of a good or service but cannot influence price

because everything is selling at the same price that means the additional unit (marginal revenue) will be the same as the AR

34
Q

how does the AR and MR curves work in a monopoly?

A

the marginal revenue curve must lie between the AR/demand curve

if we cut prices to sell more/clear stock the MR curve must also slope downwards at a steeper angle because the additional units will be sold at an even lower price

35
Q

when do we have revenue maximisation?

A

MR=0

Year 2 content: micro (7 decks)

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