Revenue, costs and profit Flashcards
Total revenue
TR = Q x Price
total amount of money received from sales
Average revenue
TR/Q
revenue per unit
Marginal revenue
MR = change in revenue / change in quantity
revenue gained from selling one extra unit
What does the shape of a total revenue graph look like
Inverse U , n
What is the Mr curve to the AR curve
Twice as steep
short run
all factors are fixed but one
long run
All input factors are variable
very long run
changes in technology and innovation
law of diminishing marginal returns
as variable factors of production increase so will output until a point it falls.
total product
quantity of output measure by physical units
Average product
Quantity output per factor
Marginal product
addition to output per extra unit
increasing returns to scale
when the percentage output is more than the percentage input
decreasing turns to scale
when the output is more than the input
constant returns to scale
when input and output are equal
fixed costs and example
costs that don’t change with output
capital equipment
variable costs examples
costs that change with output
raw materials
how are the costs curve shaped
according to the law of diminishing returns
What is MES
Minimum efficient scale
lowest level of output required to exploit full economies of scale.
what are internal economies of scale
occur within a business
explain the internal economies of scale for big firms
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
what are diseconomies of scale
when firms increase their size by so much that their costs of production now begin to increase due to diseconomies of scale
what causes diseconomies of scale
Poor coordination
Poor communication
Lack of motivation
how can we avoid diseconomies of scale
provide training
provide incentives - bonus etc
