year 13 economics theme 3

Question 1

profit maximisation

Answer 1

Goal of a firm to make the highest profits possible. MC=MR.

Question 2

revenue maximisation

Answer 2

Goal of a firm to get the highest possible amount of money in. MR=0.

Question 3

Sales
Maximisation

Answer 3

Goal of a firm to sell as many units as possible. AC=AR.

Question 4

Satisficing

Answer 4

Goal of a firm to balance a range of different objectives.

Question 5

total revenue

Answer 5

The total revenue earned from all the output a firm sells. TR= P x Q.

Question 6

average revenue

Answer 6

Revenue per unit sold. AR = TR / Q (which must also = P).

Question 7

marginal revenue

Answer 7

The additional revenue a firm makes when it sells one more unit of the
product. △TR / △Q

Question 8

fixed costs

Answer 8

Costs that do not change (vary) with the output of the firm.

Question 9

variable costs

Answer 9

Cost that change (vary) with the output of the firm. If you make greater
quantities you have to pay more of these costs.

Question 10

total costs

Answer 10

The total cost of all the output (quantity) produced by a firm.

TC = TFC + TVC

Question 11

average costs

Answer 11

Cost per unit. The Total cost of production divided by the quantity the
firm produces: AC = TC / Q

Question 12

marginal cost

Answer 12

The cost of the next unit produced or the additional unit produced. Delta
TC / Delta Q △TC / △Q

Question 13

average variable cost

Answer 13

Variable cost per unit.

AVC = VC / Q

Question 14

normal profit

Answer 14

The minimum level of profit needed for a company to cover its costs &
remain in the market.

TR=TC or AR=AC.

Question 15

supernormal profit

Answer 15

When a firm makes more than it needs to stay in the market.

TR > TC.

Question 16

loss

Answer 16

TC > TR

Question 17

diminishing marginal product

Answer 17

As input increases, output initially increases. Over time the amount of additional output gained from from an additional worker/FofP will fall.

Question 18

economies of scale

Answer 18

Increasing the scale of production leads to lower average costs per unit.

Question 19

diseconomies of scale

Answer 19

Increasing the scale of production leads to higher average costs per unit.
This is when large firms become inefficient.

Question 20

minimum efficient scale

Answer 20

The lowest point on the long run average cost curve.

Question 21

efficiency

Answer 21

How well or productively a firm or organisation uses inputs. The more
efficient you are, the cheaper it is to produce a particular quantity of
goods.

Question 22

productive efficiency

Answer 22

When firms produce at the lowest possible cost. This means
production will be at the lowest point on the Average Cost curve.

Question 23

allocative efficiency

Answer 23

When the cost of producing the good is well matched to how much a
consumer is willing to pay for it. We find this when MC=P.

Question 24

x-efficiency

Answer 24

X Inefficiency occurs when a firm lacks the incentive to control costs.
This causes the average cost of production to be higher than
necessary.

Question 25

dynamic efficiency

Answer 25

The optimal rate of innovation and investment to improve production
processes to reduce average cost.

Question 26

perfect competition

Answer 26

Many firms producing the same product. All firms are price takers
and there are no barriers to entry. In LR, there are no supernormal
profits

Question 27

monopolistic competition

Answer 27

Many firms, producing similar but differentiated products. Low
barriers to entry. Supernormal profits in the SR, but firms lose market
share and demand when new firms enter market. Normal profits in
LR.

Question 28

monopoly

Answer 28

A single seller, or when one firm is the whole market. Price maker.
High barriers to entry. Will make supernormal profits in long and
short run. Inefficient production and a deadweight loss to Society is
likely.

Question 29

monopsony

Answer 29

a single buyer in the market

Question 30

oligopoly

Answer 30

A market with a small number of interdependent firms with
significant market share. Supernormal profits, strategic behaviour
and collusion are likely.

Question 31

interdependence

Answer 31

The behaviour of firms will influence each other – oligopoly.

Question 32

Natural Monopoly

Answer 32

A market where it is only possible for one firm to serve all consumers
and make a normal profit. A market with extremely high fixed costs
to establish a national network (railroads, telecoms, water supply).

Question 33

homoegenous products

Answer 33

Goods sold by firms in the market are identical. All the firms are
perfect substitutes for each other.

Question 34

price takers

Answer 34

Each firm has a tiny market share and they cannot influence the
market price of the good that they sell.

Question 35

no barriers to entry

Answer 35

Firms can enter and leave the market very easily in response to the opportunity to make more profits or the potential for losses.

Question 36

perfect information

Answer 36

All buyer and sellers have all the information and knowledge available about the goods available and the different firms.

Question 37

no transaction costs

Answer 37

There are no additional costs of buying and selling goods in this
market.

Question 38

no externalities

Answer 38

There are no third party costs or benefits to consuming goods in a perfectly competitive market.