Y2 Production, costs and revenue Flashcards
Short-run avg cost
Includes fixed and variable
Long-run avg cost
Lowest cost than can be achieved with all FoP variable
Marginal cost
Cost of producing one more unit
Marginal revenue
Revenue from one more unit
Marginal product
The change in output from one more unit of an input (labour)
Average product
Output per units of inpur
Law of diminishing returns
Specialisation is exhausted, so marginal product begins to decrease and marginal cost begins to increase from additional input
Increasing returns to scale
Increased input brings a more than proportional increase in output due to division of labour/specialisation
Minimum efficiency scale
When EoS have been fully exploited, lowest avg cost
Motives for profit maximizing
Higher dividends for shareholders
R&D
Less vulnerable to takeover
Higher salaries for workers
How to profit max
When MR=MC
Limitations to profit max
Difficult to know your MR and MC
Depends how other firms react
Demand is affected by other things than price
Profit satisficing
Profit satisficing
When workers/managers only do enough to keep the bosses content, as they won’t benefit much from higher profits
Why not profit max?
Market share focus
Survival in hard times
Breaking into new market
Invest for long-term prosperity
Why sales max
Increase market share
Monopoly power (more profit in LR)
Bigger company (more prestige & higher salaries)
Force rivals out of business
