The Firm, Objectives, Costs and Revenues Flashcards
At what point does profit maximisation occur?
MC = MR
What is satisficing?
Achieving a satisfactory level of output to all members of the firm
At what point does revenue maximisation occur?
MR = 0
What conditions may take place for growth maximisation?
May involve mergers/takeovers
Willing to accept lower profits in order to increase market share
What is the divorce of ownership from control?
Shareholders want to maximise profits (more dividends). Directors want to maximise sales (commision). Directors create a minimum level of profit to keep everyone happy
How do you calculate total costs?
Total fixed costs + Total variable costs
How do you calculate average fixed costs?
Average total fixed costs + Average total variable costs
What is a fixed cost?
The cost of employing the fixed factor of production
What is a variable cost?
The cost of employing the variable factors of production
What is a marginal cost?
The cost of producing for one additional unit
How do you calculate average costs?
Total cost/ Output
What is the definition of short run?
The time period in which at least one factor of production is fixed
What is the short run production/cost theory?
Law of diminishing marginal returns
What is the definition of long run?
The time period in which the scale of the factors of production are variable
What is the long run production/cost theory?
Returns to scale
What is increasing returns to scale?
An increase in the factors of production leads to a more than proportionate increase in output
What is constant returns to scale?
An increase in the factors of production leads to an equal increase in output
What is decreasing returns to scale?
An increase in the factors of production leads to a less than proportional increase in output
At what point does the minimum efficient scale occur?
The lowest point on the long run average cost curve
What 2 factors does the MES affect?
The number of firms in an industry and the structure of markets
If there is a low MES, will there be a large number of firms or a small number of firms in an industry?
Large
What are economies of scale?
Falling long run average costs as output increases
What are diseconomies of scale?
Increasing long run average costs as output increases
What are the benefits of technological change?
Improves efficiency and cost saving
How do you calculate profit?
Revenue - Costs
What is revenue?
The money a firm receives from selling its output
