Revenues, Costs and Profit Flashcards
Define total revenue
Total amount of money coming into the business through sale of goods and services.
Price times quantity
define average revenue
revenue / output
define marginal revenue
additional revenue gained from selling additional unit of production.
change in output
Define total cost
Total Variable cost + total fixed cost
Define fixed cost
Cost that does not change with output and remain constant
Define variable cost
Cost that varies with output
Define normal profit
The minimum level of profit required to keep the firm in the market
Define supernormal profit
Excess profit above normal profit
Define marginal returns
Extra returns gained from adding an additional unit of input to the production process.
Define law of diminishing marginal returns
Law states that as you add variable resources to fixed resources, the additional output will eventually decrease.
Define economies of scale
when average unit cost decrease because output increases
Types of internal economies of scales
- Purchasing economies
- Risk-bearing economies
- Marketing economies
- Technical economies
- Managerial economies
- Financial economies
REMEMBER MARKETING AND FINANCIAL
Types of external economies of scale
- Infrastructure
(reduced transportation cost) - Skilled labour
(reduce cost of hiring and training) - Research and development
(Easier access to new technology)
Define diseconomies of scale
When cost per unit increases due to firm becoming too large.
What are diseconomies of scale factors
- Poor coordination 2. Poor control 3. Poor communication.
Define minimum efficient scale MES
Lowest output level needed for a firm to fully exploit economies of scale
Define internal economies of scale
economies of scale that occur within the firm because of the firms own growth
define external economies of scale
When firms within the industry benefit from economies of scale due to growth in the industry.
