Profit shifts graph Flashcards
How do you draw a shift to the right in revenue ?
To draw.a dhift, you draw the new MR and AR higher than the original
Why would this revenue increase ?
Advertisement, social media celebs etc.
What happens when the revenue increases for a firm ?
The demand for the good has gone up so producers will increase the prices and the quantity supplied. They will also incur new profits
How do you draw a shift to the left in revenue ?
You would draw the new AR and MR lower than the old.
Why would revenue go down ?
A new company may of emerged
What happens when the revenue decreased ?
When revenue goes down the price will go down as well as quantity. The Pmax point goes down as well decreasing profit
How do you draw costs increasing on a graph ?
You shift both MC and ATC curve upwards. To find new profit you look at the new MC curve
Why would costs go down ?
These would go down because of variable costs may increase like fuel prices increasing.
What happens when costs go up ?
The quantity demanded and supplied will go down and the price will therefore increase to make up for the increase in costs
How do you draw costs decreasing ?
You shift both MC and ATC downwards.
Why would costs increase ?
For instance variable costs may go down such as replacing workers who are robots.
What happens when costs go down ?
As variable costs go down, both MC and AVC will go down. This will decrease price and increase quantity demanded. As the robots would be more efficient, this would be an increase in profits as costs of production are cut
What happens when there is an increase in fixed costs and what is an important rule ?
Increase in fixed costs will lead to an increase in AC only not MC. This is because a change in fixed does not effect the output of an additional good.
How do you draw fixed cots increasing ?
You shift the ATC curve upwards
Why would fixed costs increase ?
rent may increase and this does not effect the output
