Profits + Revenue + Costs Flashcards
What is the profit calculation?
total revenue - total costs
What is normal profit?
Profit made hat the firm could make by using its resources to the next best alternative therefore, the minimum profit a firm must make to stay in business
What is economic cost?
financial cost + normal profit
What is subnormal profit?
Occur when total economic costs > than total revenue, revenue is insufficient to cover the opportunity costs so firms leave industry for the next best alternative
What is supernormal profits?
Profit over and above normal profit
What is break even point?
The level(s) of output where total revenue = total costs
What is profit maximisation?
Occurs where there is the largest difference between total costs and total revenue, MC=MR
What is revenue?
Income a firm receives from selling its output
Price x Quantity
What is total revenue?
Total money received from the sale of any given quantity of output
TR = price per unit x quantity sold = P X Q = AR X Q
What is average revenue?
Average receipts per unit sold AR = TR/Q
What is marginal revenue?
The change in revenue from selling one extra unit of output
MR = deltaTR/deltaQ = TRn -TRn-1
What are price takers and makers?
Price takers = Firm which has no influence on the market price and must sell all its output at the going market price
Price makers = A firm which is able to select the price at which it sells its output, will generally sell more at a lower price
What are fixed costs?
Costs which stay the same no matter how many units are produced: rent, salaries, insurance
What are variable costs?
Costs which change as output changes: raw materials, packaging, zero hours workers
What are semi-variable costs?
Costs which have fixed and variable elements: gas, electricity, salaried workers with commission
What are total costs?
The cost of producing any given level of output
TVC+TFC = ATC
What are average fixed, variable and total costs?
ATC = the average cost of production per unit, TC/Q
AVC = TV/Q
AFC = TFC/Q
What are marginal costs?
The cost of producing any given extra unit of output or the change in total costs divided by the change in output
What is the impact of diminishing returns?
- only possible to increase output by adding more units of the variable factors to the fixed factors
- each successive worker adds less and less output due to law of diminishing returns
- causes unit costs to rise
What is production in the short run?
Period of time over which at least 1 factor of production is fixed
What is production in the long run?
All factors of production are variable
What is the Law of Diminishing Returns?
Law stating that if a firm adds successive units of variable factor(s) while holding inputs of at least one other factor fixed, it will eventually derive diminishing marginal returns from the variable factor(s)
