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ECONOMICS THEME 3 > Revenue, costs and profit > Flashcards

Revenue, costs and profit Flashcards

1
Q

Total revenue

A

TR = Q x Price
total amount of money received from sales

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2
Q

Average revenue

A

TR/Q
revenue per unit

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3
Q

Marginal revenue

A

MR = change in revenue / change in quantity
revenue gained from selling one extra unit

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4
Q

What does the shape of a total revenue graph look like

A

Inverse U , n

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5
Q

What is the Mr curve to the AR curve

A

Twice as steep

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6
Q

short run

A

all factors are fixed but one

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7
Q

long run

A

All input factors are variable

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8
Q

very long run

A

changes in technology and innovation

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9
Q

law of diminishing marginal returns

A

as variable factors of production increase so will output until a point it falls.

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10
Q

total product

A

quantity of output measure by physical units

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11
Q

Average product

A

Quantity output per factor

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12
Q

Marginal product

A

addition to output per extra unit

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13
Q

increasing returns to scale

A

when the percentage output is more than the percentage input

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14
Q

decreasing turns to scale

A

when the output is more than the input

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15
Q

constant returns to scale

A

when input and output are equal

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16
Q

fixed costs and example

A

costs that don’t change with output

capital equipment

17
Q

variable costs examples

A

costs that change with output
raw materials

18
Q

how are the costs curve shaped

A

according to the law of diminishing returns

19
Q

What is MES

A

Minimum efficient scale

lowest level of output required to exploit full economies of scale.

20
Q

what are internal economies of scale

A

occur within a business

21
Q

explain the internal economies of scale for big firms

A

Financial - negotiate discounts

Marketing- lower overall marketing costs (bulk buying)

Managerial - more able to higher specialist managers

Technical -purchase specialist equipment easier

Purchasing - buying in bulk

22
Q

what are diseconomies of scale

A

when firms increase their size by so much that their costs of production now begin to increase due to diseconomies of scale

23
Q

what causes diseconomies of scale

A

Poor coordination

Poor communication

Lack of motivation

24
Q

how can we avoid diseconomies of scale

A

provide training
provide incentives - bonus etc

25
Q

Normal profit vs supernormal profit vs subnormal profit

A

Normal - producing at the AC and the opportunity cost

SNP - profit made above the opportunity cost

Subnormal profit - loss

26
Q

when will a firm shut down

A

when they aren’t able to cover their variable costs. Shutting down will cost less then if they were to still continue producing.

27
Q

What are the barriers to entry (6)

A

Startup costs
High sunk costs
Legal barriers
Strategic barriers - predator/ limiting price
Brand loyalty
Information

27
Q

What are the barriers to entry (6)

A

Startup costs
High sunk costs
Legal barriers
Strategic barriers - predator/ limiting price
Brand loyalty
Information

28
Q

What are the barriers to entry (6)

A

Startup costs
High sunk costs
Legal barriers
Strategic barriers - predator/ limiting price
Brand loyalty
Information

28
Q

What are the barriers to entry (6)

A

Startup costs
High sunk costs
Legal barriers
Strategic barriers - predator/ limiting price
Brand loyalty
Information

28
Q

What are the barriers to entry (6)

A

Startup costs
High sunk costs
Legal barriers
Strategic barriers - predator/ limiting price
Brand loyalty
Information
Number of firms int he market

28
Q

What are the barriers to entry (6)

A

Startup costs
High sunk costs
Legal barriers
Strategic barriers - predator/ limiting price
Brand loyalty
Information

29
Q

What are the barriers to exit

A

Redundancy costs - pay for their workers

Selling assets - price they get for selling their assets is much less that they pay for

Contractual agreements - cant leave until completed

30
Q

Whats the opportunity cost included in

A

The normal profit.
the minimum amount needed to cover their cost of production - the price needed to sustain the same level as if you were to cover the cost of the next best alternative

31
Q

In what markets is there price volatility

A

oil markets
Bond markets
commodity markets - where there are homogenous goods

ECONOMICS THEME 3 (8 decks)

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