Revenue and Profit Flashcards
business revenue definition?
the income generated from selling goods and services
Total revenue = ?
price per unit x quantity sold
When will business revenues rise?
- firm can charge a higher price
- a business grows their customer base
- enterprise widens product range and opens more outlets
- business with elastic demand lowers price
average revenue = ?
total revenue / output
what is marginal revenue?
the addition to total revenue resulting from the sale of one more unit of output
With an inelastic demand curve, an increase in price will?
cause revenue to increase
With an inelastic demand curve a decrease in price will cause revenue to?
fall
with an elastic demand curve an increase in price will cause revenue to?
fall
with an elastic demand curve a decrease in price will casuse total revenue to?
increase
What is supernormal profit?
differance between total revenue and total costs
How do you calculate supernormal profit?
TR - TC
What is normal profit
a cost of production
What are the four reasons why profit is important ?
- finance for capital investment and research
- market entry
- demand for and flow of factor resources
- signals about health of economy
What are market structures?
refers to number of firms within an industry and the way in which those businesses behave
Give the spectrum of competition for market structures, starting with least?
- monopoly, duopoly, oligopoly, monopolistic competition, perfect competition
What is the criteria for catergorising industries into market structures?
- how many firms are competing in market
- how differentiated are the products
- how easily can new firms enter the market
Give examples of industries that are monopolys?
- water companies
- search engines
- zip manufacturing
Give examples of oligopolys?
- train operators
- supermarkets
- mobile phone networks
- cinemas
Give examples of monopolistic competition?
- football clubs
- restraunts
- tv channels
- pubs
- hairdressers
Give examples of perfect competition?
- stock market
- fruit + veg
- eggs
- street food in developing countires
What does the concentration ratio tell us?
- number of firms that dominate in a market
How do you calculate the concentration ratio?
- for 3 firm concentration ratio –> add up market share for three largest firms in that industry
Characteristics of monopoly markets?
- large barriers to entry
- single firm dominates market
- limited number of products
- able to set prices
Characteristics of monopolistically competitive markets?
- large number of firms with little market power
- slightly differentiated products
- low number of barriers to entry
- price dictated by market
Explain characteristics of oligopolistic markets?
- few firms dominate market
- products are differentiated
- large barriers to entry
- firm can set price in market to some extent
- makes large use of advertising
Explain the characteristics of perfectly competitive markets?
- infinite number of firms, little market power
- homogenous products ( identical)
- no barriers to entry
- prices dictated by market
- no advertising necersarry
What are objectives of firms?
- long term goals which determine the guiding principles of a business
What can objectives be broken down into?
- short and medium term aims
What are the four types of objectives ?
- profit maximisation
- profit satisficing
- revenue maximisation
- sales maximisation
What is profit maximisation?
- firms seek to attain highest level of profit available
WHat is profit satisficing?
a profit is wanted that satisfies the needs of the owners or managers of an organisation
What is revenue maximisation ?
firm will seek to maximise sales revenue
- occur at point where marginal revenue = 0
What else will firms try and achieve ?
- survival
- growth (through opening new stores or merger / takeover)
- increase market share
What does achaiveing the additional targets depend on?
- government businesses wanting to supply a service
- worker cooperatives look to benefit their members
- producer cooperatives might look to gain economies of scale with smaller firms joining together
