The Firm, Objectives, Costs and Revenues

Question 1

At what point does profit maximisation occur?

Answer 1

MC = MR

Question 2

What is satisficing?

Answer 2

Achieving a satisfactory level of output to all members of the firm

Question 3

At what point does revenue maximisation occur?

Answer 3

MR = 0

Question 4

What conditions may take place for growth maximisation?

Answer 4

May involve mergers/takeovers

Willing to accept lower profits in order to increase market share

Question 5

What is the divorce of ownership from control?

Answer 5

Shareholders want to maximise profits (more dividends). Directors want to maximise sales (commision). Directors create a minimum level of profit to keep everyone happy

Question 6

How do you calculate total costs?

Answer 6

Total fixed costs + Total variable costs

Question 7

How do you calculate average fixed costs?

Answer 7

Average total fixed costs + Average total variable costs

Question 8

What is a fixed cost?

Answer 8

The cost of employing the fixed factor of production

Question 9

What is a variable cost?

Answer 9

The cost of employing the variable factors of production

Question 10

What is a marginal cost?

Answer 10

The cost of producing for one additional unit

Question 11

How do you calculate average costs?

Answer 11

Total cost/ Output

Question 12

What is the definition of short run?

Answer 12

The time period in which at least one factor of production is fixed

Question 13

What is the short run production/cost theory?

Answer 13

Law of diminishing marginal returns

Question 14

What is the definition of long run?

Answer 14

The time period in which the scale of the factors of production are variable

Question 15

What is the long run production/cost theory?

Answer 15

Returns to scale

Question 16

What is increasing returns to scale?

Answer 16

An increase in the factors of production leads to a more than proportionate increase in output

Question 17

What is constant returns to scale?

Answer 17

An increase in the factors of production leads to an equal increase in output

Question 18

What is decreasing returns to scale?

Answer 18

An increase in the factors of production leads to a less than proportional increase in output

Question 19

At what point does the minimum efficient scale occur?

Answer 19

The lowest point on the long run average cost curve

Question 20

What 2 factors does the MES affect?

Answer 20

The number of firms in an industry and the structure of markets

Question 21

If there is a low MES, will there be a large number of firms or a small number of firms in an industry?

Answer 21

Large

Question 22

What are economies of scale?

Answer 22

Falling long run average costs as output increases

Question 23

What are diseconomies of scale?

Answer 23

Increasing long run average costs as output increases

Question 24

What are the benefits of technological change?

Answer 24

Improves efficiency and cost saving

Question 25

How do you calculate profit?

Answer 25

Revenue - Costs

Question 26

What is revenue?

Answer 26

The money a firm receives from selling its output