Revenue and Profit Flashcards
costs definition
the payment what the firm has to make to produce goods and services
Total cost (TC):
The total sum of all costs
Total fixed cost (TFC):
Costs that do not change when output changes in the long run. They even exist at zero output. e.g. rent, salaries or interest of loan
Total variable cost (TVC):
Costs that change when output changes e.g. electricity, rent
Total Revenue formula:
Price x Quantity
Total cost formula:
TFC + TVC
Total profit formula:
Total revenue - total cost
average fixed costs formula:
TFC / Output
Average variable costs formula:
TVC / Output
Average total costs formula:
TC / Output
break even definition:
The quantity where TR = TC. Profit equals to zero.
Average revenue formula
Total revenue / output
Business goals (5)
- Maximize profits
- Maximize sales/Increase market share –> gain fame as a brand
- Expand into other countries
- Create a good reputation –> brand loyalty
- Survive against competition
Market structure definition:
Where buyers and sellers interact. Not necessarily a place, it can be online, in a city, country or even worldwide
Characteristics of market structure (3)
- Number of sellers
- Type of good/service
- Entry to market (is it easy or hard to start a business?)
Price taker definition:
Firms that follow the price of their competitors. The firm is too small to charge a higher price than their competitors.
Price setter definition:
Firms that are able to set a higher price than other competitors because they sell something unique
Types of goods/services with definitions (3)
1) Homogeneous goods –> the good/service is identical for the buyer e.g. bananas from AH or Jumbo
2) Differentiated goods –> identical but slightly different e.g. pizza from Domino’s or New York Pizza
3) Unique goods –> Only one type available. There are no close substitutes available.
Barriers to entry definition + 4
Obstacles that prevent a new business from starting:
- Startup costs
- Technology (knowledge)
- Patents/copyrights
- Regulation (license/permission from govt.)
perfect competition definition + 3
market structure/situation with many sellers who sell the same type of good/service.
1) The goods sold are homogenous to an extent.
2) This means that there are many price takers
3) It’s easy to enter the market
Monopoly definition + 3
Market structure/situation where only one firm sells a unique or differentiated good with almost no substitutes.
1) The firms have a lot of power to charge their own price without fear of losing power
2) They are a price setter
3) Pure monopoly rarely exists, and most monopolies are govt. owned e.g. public transport
Monopolies can be created through (5)
- Govt.
- Regulation
- Patent/copyright
- Contracts between firms
- Brand loyalty through advertising
