Revenues, costs and profits! Flashcards
What’s the formula for total revenue?
Price x Quantity Sold
What’s marginal revenue?
The revenue gained from selling one additional unit.
What’s average revenue?
Total Revenue / Quantity Sold
What’s total cost?
How much it costs to produce a certain level of output.
Total Cost = total variable costs + total fixed costs.
What are fixed costs?
Costs that don’t vary with output. In the short run, at least one factor of production cannot change.
What are variable costs?
Costs that vary with output. In the long run, all factors of production can change.
How do you calculate average costs?
Total costs / output.
What’s marginal costs?
How much it costs to produce one extra unit.
What’s allocative efficiency?
Where the resources used in the production of a good are equal to the perceived value of the good placed by the consumer. Where P = MC.
What’s productive efficiency?
The lowest point on the AC curve
What’s x-efficiency?
Being both allocatively and productively efficient
What’s static efficiency?
At a given point in time, where AR=MR=AC.
What’s dynamic efficiency?
Efficiency over time - using supernormal profits to reinvest in innovation, R+D, and EofS.
What’s profit maximisation?
Where MR = MC.
It’s a short-term shareholder objective, where shareholders want to be rewarded by dividends and share price rises.
What’s revenue maximisation?
Where MR = 0.
A long-term managerial objective, where managers are looking at the longevity of a firm rather than profits.
