Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

MICRO ECONOMICS IMPROVED > T3 REVENUE COST AND PROFIT > Flashcards

T3 REVENUE COST AND PROFIT Flashcards

1
Q

What is the formula for revenue

A

Price * quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the formula for average revenue

A

total revenue divided by output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the formula for marginal revenue

A

Change in total revenue divided by the change in output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the formula for average fixed cost

A

TFC / Q

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Describe the look of the average fixed cost curve

A

*add image

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

TFC and AFC are only relevant in:

A

the short run

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is meant by diminishing marginal returns

A

In the short run, as more factors are employed, the marginal returns from these factors will eventually decrease

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Explain why the marginal cost (MC) curve goes down and then up

A

MC decreases because initially workers will specialise, increase productivity and decreasing marginal cost.

MC will then increase because diminishing marginal returns will set in, which will decrease productivity and increase marginal cost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How do we calculate average variable cost

A

TVC / Q

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does avc graph look like

A

add diagram

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Describe the MC & AVC relationship

A

When MC is below AVC, AVC will decrease
When MC is above AVC, AVC will increase

When MC = AVC, AVC is at its lowest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Average fixed cost is always falling because as quantity increases:

A

Total fixed cost is spread across more units

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

how do you work out average total cost 2 ways

A

TC/Q or AVC + AFC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

describe the look of the srac and subsequent lrac curves

A

add diagram

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

describe internal economies of scale

A

Reductions in long run average cost, as a firm’s size increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the 6 types of internal economies of scale

A

risk-bearing economies
purchasing economies
technical economies
managerial economies
marketing economies
financial economies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are v

A

When firms expand and make bigger purchases and can negotiate lower prices and reduce their LRAC.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are technical economies

A

when big firms invest in specialist capital to Increase their productivity, and decrease their LRAC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are managerial economies?

A

When big firms hire specialist managers, increasing a firm’s productivity and decreasing their LR average costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are marketing economies?

A

When big firms spread their marketing costs across many units, decreasing their LR average costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are financial economies?

A

When bigger firms are less risky, so they can secure cheaper loans, reducing their long run average costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

As firms get bigger and less risky they can get loans at

A

lower interest rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are risk-bearing economies?

A

When big firms can use their big profits to diversify into new areas, reducing the cost of failure in one sector.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

as companies get bigger, they can exploit internal economies to

A

Reduce their long run average costs

25
Q

What is bureaucracy

A

an administrative, government, or social system with a hierarchical structure and complex rules and regulations.

26
Q

What is internal diseconomies of scale

A

Internal diseconomies of scale lead to a rise in long run average cost, as a firm expands.

27
Q

What Types of internal diseconomies of scale 3

A

Alienation, bureaucracy and communication

28
Q

What is alienation

A

Workers feel alienated in very large firms, like they’re just another cog in the machine. This leads to demotivation, decreasing productivity, increase LRAC.

29
Q

What is bureaucracy in the context of diseconomies of scale

A

Bureaucracy is all the paperwork, managers, filing and secretaries that a firm has to pay for when it expands, increasing LRAC.

30
Q

What is communication in economics of scale

A

In big firms, employees may argue with each other and communication will be slow because big firms have so many layers. These factors will reduce productivity, increasing LRAC.

31
Q

What cost must be included when calculating profit in economics

A

opportunity cost

32
Q

What is normal profit

A

where TC ( including opp cost) = TR

33
Q

What if a business is making less than normal profit?

A

It will leave the market, because it’s no longer covering its opportunity cost

34
Q

What is supernormal profit

A

When TR > TC

35
Q

What is average revenue equal to

A

Price

36
Q

Describe the look of the cost and revenue diagram

A
37
Q

What is marginal revenue

A

Marginal revenue is the additional revenue from selling one extra unit.

38
Q

What is marginal cost

A

Marginal cost is the additional cost of producing one extra unit.

39
Q

How do we represent Profit on a cost and revenue diagarm

A

add diagram

40
Q

At a high price of is demand for Apple Airpods likely to be elastic or inelastic

A

elastic

41
Q

If MR is positive, demand will be:

A

Demand is elastic along the top half of the curve where marginal revenue is positive.

42
Q

What is meant by Revenue maximisation

A

A firm’s total revenue is maximised when MR = 0

43
Q

Typically as As price decreases, demand will become more:

A

inelastic

44
Q

When marginal revenue equals zero what can be said about TR and demand

A

Total revenue is maximised and demand is unitary.

45
Q

What is the minimum efficient scale?

A

The minimum efficient scale is where a firm first reaches its lowest LRAC.

46
Q

What are external economies of scale?

A

Reductions in long run average cost, as industry output increases

47
Q

Write the definition of: External economies of scale: lower recruitment costs

A

When an industry expands, lots of specialist workers will be move to that area to find work.

This makes it easier to recruit workers, reducing a firm’s recruitment costs, decreasing their LRAC.

48
Q

What is meant by external economies of scale: knowledge transfers

A

When an industry expands, knowledge will be transferred between firms.

This helps firms learn more effective new production techniques, decreasing their LRAC.

49
Q

What is the average revenue curve equal to

A

demand curve

50
Q

at what quantity is revenue maximised

A

when MR = 0

51
Q

As price goes down along the demand curve what happens to the elasticity?

A

Elasticity changes from elastic to unitary to inelastic.

52
Q

why is demand elastic at higher prices

A

At higher prices, a % change in price will have a bigger impact on demand so consumers will be more responsive

53
Q

Why is demand inelastic at lower prices

A

At lower prices, a % change in price will have a smaller impact on demand so consumers will be less responsive

54
Q

If demand is inelastic, an increase in price will have what effect on total revenue

A

increase total revenue, because quantity will fall by a smaller %.

55
Q

if demand is inelastic what effect will a decrease in price have on revenue

A

decrease total revenue, because quantity will increase by a smaller %

56
Q

if demand is elastic, what effect will a decrease in price have on revenue

A

increase total revenue, because quantity demanded will increase by a larger %

56
Q

if demand is elastic what effect will a increase in price have on revenue

A

decrease total revenue, because quantity demanded will fall by a larger %

57
Q
A

MICRO ECONOMICS IMPROVED (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions