Revenue, Costs and Profits Flashcards
What is total revenue?
Total earnings per period from the sale of output
How do we calculate total revenue?
Price x quantity
What is average revenue?
Total revenue divided by quantity
What is marginal revenue?
The addition to TR from selling one more unit of output
How do we calculate marginal revenue?
Change in total revenue / change in the no. of units sold
How can we describe the marginal revenue curve?
It is twice as steep as the demand (=AR) curve. It =0 at unit elastic price. It is positive as long as the price elasticity of demand is elastic and if it is negative, as long as the price elasticity of demand is inelastic
How do we calculate total profit?
Total revenue - total cost
What is normal profit?
Occurs when total revenue = total costs
What is abnormal profit?
Occurs when total revenue is greater than the total costs
What is loss?
When total costs are greater than total revenue
What happens if MR > MC?
Then producing and selling one more unit adds more to revenue than to costs. Profits will increase
What happens if MR < MC?
Then producing and selling one more unit adds more to costs than revenue. Profits will decrease
Where is maximum profit?
When MR = MC
What happens to production in the short-run?
It will be produced as long as some of the fixed costs are recovered by total revenue.
Why might production not be produced in the short-run?
If nothing of the fixed costs are recovered by total revenue
