Revenues, Costs, Profits, Efficiencies and Objectives

Question 1

Total revenue

Answer 1

price x quantity

Question 2

Average revenue

Answer 2

total revenue ÷ quantity

Question 3

Marginal revenue

Answer 3

change in total revenue ÷ change in quantity

Question 4

Characteristics of perfect competition

Answer 4

very many consumers, similarly sized firms, identical product (homogenous),
perfect information (e.g about price)

Question 5

Price taker

Answer 5

a firm in a competitive market that has to accept the market price

Question 6

Price maker

Answer 6

a firm that has control over the market price

Question 7

Fixed costs

Answer 7

costs that do not vary with the level of output (short run) e.g salaries, rent

Question 8

Variable costs

Answer 8

costs that vary with the level of output e.g raw materials, wages

Question 9

Total cost

Answer 9

fixed costs + variable costs

Question 10

Average total cost

Answer 10

total cost ÷ quantity

Question 11

Marginal cost

Answer 11

change in total cost ÷ change in quantity

Question 12

Law of diminishing returns

Answer 12

if a firm increases it’s input of one factor of production while other factors are fixed, it will eventually lead to less extra product of the variable factor

Question 13

Short run

Answer 13

the period when a firm can only vary the input of one of its factors of production e.g labour, but faces a fixed input of the others

Question 14

Long run

Answer 14

the period when a firm can vary the inputs of all its factors of production

Question 15

Economies of scale

Answer 15

where an increase in size of a firm’s level of output leads to lower long run average cost

Question 16

Types of Economies of Scale

Answer 16

Purchasing, Managerial and Marketing, Risk bearing, Financial, Technical and Transport

Question 17

Minimum efficient scale

Answer 17

the level of output where LRAC sotps falling as output increases

Question 18

Diseconomies of scale

Answer 18

when an increase in the level of output leads to higher lrac

Question 19

Productive efficiency

Answer 19

ac = mc where production takes place using the least amount of scarce resources, producing at minimum ac

Question 20

Allocative efficiency

Answer 20

p = mc. when society is producing an appropriate bundle of goods relative to consumer preferences

Question 21

Dyanamic efficiency

Answer 21

an increase in ae or pe in the long run due to an increase in innovation or technical progress

Question 22

x inefficiency

Answer 22

when a firm lacks the incentive to keep costs down so is not working of minimum lras

Question 23

Profit maximisation

Answer 23

mc = mr

Question 24

Normal profit

Answer 24

profit that covers the opportunity cost of capitol and is just sufficient to keep the firm in the market

Question 25

Supernormal/abnormal profit

Answer 25

profit that is greater than normal profit

Question 26

Revenue maximisation

Answer 26

MR = 0

Question 27

Marginal revenue

Answer 27

the additional revenue gained by a firm from selling an additional unit of output

Question 28

Sales maximisation

Answer 28

AR = AC

Question 29

Satisficing

Answer 29

where a manager aims to produce satisfactory results for the firm, e.g in terms of profit rather than trying to maximise them