Revenue, Costs And Profits Flashcards
TC = ?
Fixed + variable costs
MC = ?
Change in total cost/change in output
what is the law of diminishing returns
it’s a phenomenon that occurs in the short run; where employing an additional factor of production causes a relatively smaller increase in output. where MP starts falling.
AR = ?
Total Revenue/Quantity
MR = ?
Change in Total Revenue/
Change in Quantity
Profit
revenue - cost
when is it normal profit
AC = AR, The profit that the firm could make by using its resources in their next best use
when is it supernormal/abnormal profit
AR > AC
What is the shutdown point for a price setter in the short run
AR < AVC
What is economic cost
The opportunity cost of an input to the production process.
What is fixed cost (indirect/overhead cost)
Costs that do not vary as the level of output increases or decreases.
What is imputed cost
an economic cost that a firm does not pay for with money to another firm but it is the opportunity cost of factors of production which the firm itself owns.
What is variable cost (direct/prime costs)
costs that vary directly in proportion to the level of output of a firm. Changes with output.
What are economies of scale
A fall in the long-run average costs of production as output rises
What are diseconomies of scale
A rise in the long-run average costs of production as output rises
what is the minimum efficiency of scale (MES)
the lowest level of output at which long-run average cost is minimized
What is the optimum level of production
The range of output over which long-run average is lowest
What is the long-run shutdown point
where normal profit is not being earned in the long run
What is the law of diminishing returns
the law that states that if the input of one factor of production is increasing along with a fixed input, output will eventually decline.
What the internal economies of scale
financial economies (big finance pool) technical economies (increasing returns to scale) managerial economies (specialization) marketing economies (low average costs due to advertising) purchasing economies (buying raw materials in bulk) Risk bearing economies (diversification)
