Topic 2: Dynamics of markets: effects of costs and revenue Flashcards
What is a fixed cost
is any cost that does not vary with the level of output
What does the fixed cost include
overhead expenditures that extend over a period of months or years
What is a variable cost
is any cost that changes with the level of output which includes overtime variable costs
WhaT IS average cost
it total costs divided by output
Average variable costs
is divided by output
Average fixed costs
total fixed cost divided by output
What is the marginal cost
is what happens to the total cost when output is varied by some small output
is the change in total cost when output is changed by one unit
What is a cost structure
is the way various measures of the cost vary with the production level
What is the long run
is the period during which all resources can be changed- either increased or decreased
What are the economies of scale
the property whereby long-run average total costs falls as the number of output decreases
What does the shape of the long-run average total cost
important information about the technology for producing a good
Diseconomies of sale
When long-run average total cost does not vary with the level of output
Economies of scale
When long-run average cost declines as output increases
Constant returns to scale
When long-run average total cost does not vary with the level of output
What is the production function
the relationship between input and output
The average product of labor
total output divided by the amount of labor
What is revenue
used to describe the flows of money received by businesses
What is marginal revenue
is the additional revenue added by an additional unit of output
When will revenue change
When prices change or when demand changes
What will happen if the response to a price increase/ decrease
revenue will in all likelihood increase/ decrease in demand
What happens when demand changes
the demand curve will shift outwards
What happens when demand increases and price remain the same
revenue will increase
The more elastic the demand curve
the less the businesses ability to increase revenue
What are implicit costs
costs that do not require an outlay of money by the business
What is economic profit
is the difference between total revenue and the relevant opportunity-cost plus all explicit cost, of all resources used to produce the good or service sold
What is normal profit
the profit that remains after the economic profit has been eliminated
