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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

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2
Q

What is the formula for average revenue

A

total revenue divided by output

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3
Q

What is the formula for marginal revenue

A

Change in total revenue divided by the change in output

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4
Q

What is the formula for average fixed cost

A

TFC / Q

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5
Q

Describe the look of the average fixed cost curve

A

*add image

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6
Q

TFC and AFC are only relevant in:

A

the short run

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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

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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.

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9
Q

How do we calculate average variable cost

A

TVC / Q

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10
Q

What does avc graph look like

A

add diagram

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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

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12
Q

Average fixed cost is always falling because as quantity increases:

A

Total fixed cost is spread across more units

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13
Q

how do you work out average total cost 2 ways

A

TC/Q or AVC + AFC

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14
Q

describe the look of the srac and subsequent lrac curves

A

add diagram

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15
Q

describe internal economies of scale

A
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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

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17
Q

What are v

A

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

18
Q

What are technical economies

A

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

19
Q

What are managerial economies?

A

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

20
Q

What are marketing economies?

A

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

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.

22
Q

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

A

lower interest rates

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.

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
A

MICRO ECONOMICS IMPROVED (14 decks)

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