Market Structures Flashcards
Costs
the value of inputs
fixed costs
costs that are independent of output produced
variable costs
costs that are directly related to the level of output produced
total cost
The total cost of production of a good or provision of a service.
Total Cost = Fixed Cost + Variable Cost
Average cost
the unit cost of production
Average Cost = Total cost / quantity produced
Marginal cost
The change in total cost when one more unit of output is produced
‘Revenue’ as a vague concept
Receipts from sales
Total Revenue
quantity x price
Price taker
a firm in a competitive market that has to accept the market price
Price maker
a firm that has control over the market price
Average revenue
AR = total revenue / quantity
Marginal Revenue
addition to total revenue from one additional sale
Short run
time period when a firm is unable to change factors of production except for one, usually labour
Long run
Time period when all factor inputs can be changed
Minimum efficient scale
the lowest level of output where long-run average cost (LRAC) is minimised
Economies of scale
The benefits gained through producing on a larger scale
Technical economies
Increased capacity or a technological development that results in lower long-run average costs
Purchasing economies
reduced unit costs due to bulk buying of inputs into a business
Managerial economies
Savings in long run average costs due to the specialisation of management
Financial economies
the cost savings that large firms may receive when borrowing money
Diseconomies of scale
causes of an increase in LRAC beyond the point of minimum efficient scale
External economies of scale
Falling long run average costs that benefit all firms in an industry
Profit satisficing
where a firm makes a reasonable level of profit that satisfies its stakeholders without maximising profit
Sales revenue maximisation
an objective where a firm produces where marginal revenue is zero.
