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Micro Economics > Revinue Costs And Profit > Flashcards

Revinue Costs And Profit Flashcards

1
Q

Total revenue

A

How much money a firm receives from its total sales

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2
Q

EQ for total revenue

A

TR= Price X quantity

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3
Q

AR

A

What a business receives on average per sale

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4
Q

EQ for AR

A

Total Revenue divided by Quantity

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5
Q

Average Revenue

A

what a business receives on average from each sale

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6
Q

tip for drawing AR

A

AR and MR must touch the

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7
Q

Marginal Revenue EQ

A

TR // Q

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8
Q

What is the TR when MR is positive

A

Total revenue increases with quantity

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9
Q

Equation for marginal revenue

A

change in TR // Change in Quantity

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10
Q

How does PED change along the AR curve

A

As MR is postitive AR is elastic

When MR becomes negative AR is inelastic

At the point of MR being 0 MR is at Unitary elastic point

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11
Q

Reasons why price is inelastic at the point when MR is negative

A

Lower prices mean that the price decrease is less recognisable and signiigcat

and decreases in price at this lower level have a reduced impact on consumption

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12
Q

What point is MR maximised

A

When MR=0

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13
Q

Fixed cost

A

Costs which dont vary with output

such as salaries and rent

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14
Q

Variable cost

A

costs which vary with output

wages or printing paper

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15
Q

Total cost

A

total variable cost + total fixed cost

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16
Q

Average fixed cost

A

the fixed cost of goods

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17
Q

EQ for average fixed cost

A

TRC //// Q

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18
Q

In what time period are TFC and AFC relevant in

A

The short run

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19
Q

Are the fixed costs in the short run

A

No

No fixed cost

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20
Q

marginal cost

A

Costs of production of one more unit

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21
Q

EQ for MC

A

MC = Change in C // Change in Q

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22
Q

What is the impact of an increase in productivity on MC

A

higher productivity leads to lower marginal

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23
Q

Diminishing marginal returns

A

In the Short Run

More FOP are employed

Productivity will diminish

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24
Q

Law of diminishing marginal returns

A

Productivity will diminish

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25
Law of diminishing marginal returns
productivity will decrease with every extra increase in FOP
26
Why is diminishing marginal returns on a thing in the short run
Only one factor in the short run is fixed in the long run all factors are variable so final productivity can increase continually
27
Why does MC initially decrease and then increase
Marginal cost initially decreases but as more workers are hired they can specialise increasing productivity decreasing marginal cost marginal cost will then increase because of demising margin returns decreasing productivity increasing marginal cost
28
Diminishing marginal returns
In the short run as more factors are employed, marginal revenue from these factors will eventually decrease
29
Average Variable Cost EQ
TVC // Quantity TVC- all costs variable costs together
30
Where to AVC and MC meet
AVC is lowest point where it meets MC
31
ATC eq
Total Cost // Quantity
32
Internal economies of scale
Reduce AC internally lowering COP for firms
33
6 internal economies of scale
1 Purchasing Economies 2 Technical Economies 3 Managerial Economies 4 Marketing Economies 5 Financial Economies 6 Risk bearing economies
34
Technical economies
A big firm investing in specialist capital increases productivity which decreases long run average cost
35
Purchasing economies
Bulk buying Reduces cost of unit by negotiating a lower price lowers cost of production
36
Managerial economies
Productivity increases as LRAC decreased. Big firms can hire specialist managers to increase productivity
37
Marketing Economies
When marking costs are spread over millions of units 5 billion USD was spent in 2023 by Coca Cola
38
Financial Economies
Larger firms receiving a lower interest rate of loans as they have more sales and hence are less risky
39
Risk Bearing economies
Big firms Risk bearing economies of scale then diversify Reduces the cost of failure
40
How can firms reduce long run average cost
Though internal economies of scale
41
Acronym for internal economies of scale
RMFPTM
42
Internal diseconomies of scale
When an organisation expands to much and its LRAS increases
43
3 internal diseconomies of scale
Alienation Bureaucracy Communication
44
Alienation
Workers are disengaged with their other workers and loose motivation reduces productivity which decreases LRAC
45
Bureaucracy
As a firm expands more managers and secretaries are employed to manage all the staff and systems are engaged to create processes
46
Communication
Challenging for swift communication through the firm Wastes time Increases LRAC
47
Minimum efficient scale
Point where a firm reaches its lowest long run average cost
48
3 positions on the LRAC curve
Increasing returns to scale constant returns to scale decreasing returns to scale
49
External economies of scale
Reductions in long run average cost as industry output increases
50
Examples of external economies of scale
As silicone valley expanded many willing to work for SV firms moved their to work for those firms This lowered industry recruitment costs
51
examples of knowledge transfers in an industry
Firms sharing knowledge to reduce the AC of production across the industry lower IE the invention of the green screen
52
Return
output of imput
53
Total return
Total inputs in terms of total outputs
54
Total Inputs
Total inputs in terms of labour land capital and enterprise
55
Average return
Output of terms in every 1 input
56
Average return Eq
total outputs // Total Inputs
57
Marginal outputs
Outputs in terms of one additional imput
58
Returns to scale
Change in input leads to change in output
59
Profit EQ
Profit = total revenue - total cost
60
How does opportunity cost relate to profit
The total cost of doing something includes the OC of forgoing the next best option farming subsidies
61
What happens when a firm makes less than normal profit
AS the firm is no longer satisfying the opportunity cost for being in the market the firm exists the market
62
What happens when TR=TC
the firm is making normal profit
63
Why is the MC curve the shape it is
As a firm specialises the division of labour lowers cost per unit until diminishing marginal returns is reached
64
When will a profit maximising firm make a loss
When the point of profit maximisation corresponding ATC is higher than AR
65
What can cause a tight shift in AR and MR
Demand
66
Short run shutdown point
When Average revenue drops below average variable cost Price = AVC Loss on more units sold
67
ATC eq
ATC=AVC + AFC
68
Short Run Shutdown point
Price = AVC
69
Long Run Shutdown Point
ATC=AVC

Micro Economics (18 decks)

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