3:2:1 Revenue, Costs And Profits

Question 1

What is Total Revenue also called?w

Answer 1

• Turnover

- Sales Revenue

Question 2

What is Total Revenue?

Answer 2

Is the amount the firm received from all its sales over a certain period.

Question 3

What is the Total Revenue Equation?

Answer 3

Total Revenue = Price X Quantity

Question 4

What is Average Revenue also called?

Answer 4

Revenue per unit

Question 5

What is Average Revenue?

Answer 5

Is how much people pay per unit (price) also the demand curve

Question 6

What is the Average Revenue Equation?

Answer 6

Average Revenue = (Total Revenue) / (Quantity)

Question 7

What is Marginal Revenue?

Answer 7

The change in total revenue from selling one more unit

Question 8

What is the Gradient of the Total Revenue Curve?

Answer 8

Marginal Revenue

Question 9

Both average revenue and marginal revenue tend to be […………….]

Answer 9

Downward sloping

Question 10

How do you calculate Price Elasticity of Demand?

Answer 10

(Percentage Change in Quantity demanded) / (Percentage Change in price)

Question 11

What to remember when calculating Price Elasticity of Demand?

Answer 11

Ignore the negative signs

Question 12

Price Elasticity of Demand - What does a value greater than 1 tell us?

Answer 12

Relatively Price Elastic

Question 13

Price Elasticity of Demand - What does a value that is less than 1 tell us?

Answer 13

Relatively Price Inelastic

Question 14

What does it mean when Demand is inelastic?

Answer 14

Rise in price leads to a rise in total revenue / demand

Question 15

What does it mean when demand is elastic?

Answer 15

A fall in price leads to a rise in total revenue

Question 16

Hat does it mean when Demand is perfectly inelastic?

Answer 16

PED = 0

A given change in price will result in the same revenue change

Question 17

The Price Elasticity of Demand along a […………………………] will vary.

Answer 17

Straight line demand curve

Question 18

At [………] prices, a reduction in price will have an elastic price response.

Answer 18

High

Question 19

At [….] prices, a reduction in prices will lead to a rise in total revenue.

Answer 19

Lower

Question 20

Demand is price [……….] at lower prices

Answer 20

Inelastic

Question 21

What is the Percentage Change Equation?

Answer 21

(New Value - Old Value) / Old Value

Question 22

What can we say about the elastic part of the Demand curve?

Answer 22

If firms lower their prices then total revenue increases and if they raise their prices total revenue falls

Question 23

What can we say about the inelastic part of the Demand curve?

Answer 23

If the firm lowers prices then it will cause a fall in revenue and if the firm raises prices then it will cause a rise in revenue

Question 24

What is meant by Short Run Costs?

Answer 24

The time period in which at least on factor of production (land, labour, capital and enterprise) is fixed - it cannot be changed even if there is a change in demand.

Question 25

What are Long Run Costs?

Answer 25

The time period in which all factors of production are variable

Question 26

What are the explanation for long run and short run costs?

Answer 26

Economies and Diseconomies of scale

Question 27

What are Fixed Costs?

Answer 27

Costs that do not vary with output

Question 28

What are Variable Costs?

Answer 28

Costs that vary with output

Question 29

What is the difference between the time scale, short and long run, if Fixed and Variable Costs

Answer 29

Fixed Costs only happen in the long run | Variable Costs happen both in the long and short term

Question 30

What are Fixed Costs also known as?

Answer 30

Overheads

Question 31

What are Total Fixed Costs and Total Variable Costs together known as?

Answer 31

Total Costs

Question 32

How are Average Fixed Costs calculated?

Answer 32

Fixed Costs / Output

Question 33

What will happen to Average Fixed Costs as Output increased?

Answer 33

Average Fixed Costs will continue to fall because the cost is being spread across a greater output

Question 34

What is the Average Variable Cost Equation?

Answer 34

Variable Costs / Output

Question 35

Question - What is the Average Variable Cost of a Firm that’s total variable cost £5000 and it produces 100 units?

Answer 35

AVC = £5,000 / 100 = £50 per unit

Question 36

How do you calculate the average total cost? (AC)

Answer 36

Average Fixed Cost + Average Variable Cost Or Total Cost / Quantity Produced

Question 37

Define Average Costs.

Answer 37

Average costs per unit of output

Question 38

Define Marginal Cost.

Answer 38

Change in total costs when one more unit of output is produced

Question 39

Marginal Cost is the Gradient of which curve?

Answer 39

Total Cost curve

Question 40

What is unusual about the Marginal Cost?

Answer 40

Marginal Costs always goes through the minimum point of the average variable cost and average total cost curves

Question 41

What happens to the gap between average costs and average variable costs as output rises?

Answer 41

It gets smaller

Question 42

Explain the shape of the Average Cost Curve?

Answer 42

- Average costs start relatively high, because at low levels of output total costs are dominated by the fixed cost. - Average total cost then declines, as the fixed costs are spread over an increasing quantity of output - But as output expands further, the average cost begins to rise because of diminishing returns

Question 43

What is Economies of Scale?

Answer 43

A fall in long-run average costs as output increases

Question 44

What is Financial Economies of scale?

Answer 44

As a firm grows, it is better to be able to access loans at low costs. So they get better rates of interest

Question 45

What is Rick Bearing Economies of Scale?

Answer 45

As a firm expands, it is better able to develop a range of products and a wider customer base to spread risk and minimise the effect of any downturn

Question 46

What is Marketing Economies of Scale?

Answer 46

A large firm can spread its advertising and marketing budget over a large output and it can purchase its inputs in bulk at negotiated discounted prices if it has sufficient negotiation power in the market.

Question 47

What is Managerial Economies of Scale?

Answer 47

As a firm expands, it is in a position to employ a specialist managers in finance etc therefore increase productivity and decrease long-run average costs

Question 48

What is Increased Dimensions Economies of Scale?

Answer 48

Increasing the amount transport vehicles can carry

Question 49

Does economies of scale relate to the long or short run?

Answer 49

Long run only (Only when all factors are variable in the short run)

Question 50

What are Internal Economies of Scale?

Answer 50

Occur when an individual firm expands

Question 51

What are some examples of Internal Economies of Scale (Already Covered) ?

Answer 51

``` Financial Economies Risk-Bearing Economies Marketing Economies Managerial Economies Increased Dimensions ```

Question 52

What is External Economies of Scale?

Answer 52

Have an impact on the entire industry.

Question 53

Examples of External Economies of Scale?

Answer 53

- Industry may benefit as a result of innovations produced by other firms causing firm average costs to fall - Retailers close to each other benefit from the development new roads and transport links

Question 54

What is Diseconomies of Scale?

Answer 54

An increase in long-run average costs as output increases, often caused by managerial difficulties

Question 55

When may a firm experience Diseconomies of scale?

Answer 55

If it grows too large and moves beyond its minimum efficient scale

Question 56

Examples of actions that can cause diseconomies of scale?

Answer 56

- Firm merges with another - Firm grows internally and lacks management experience - Lack of co ordination between departments -

Question 57

Derive how the long-run average cost curve is formed?

Answer 57

It is made up of many short-run average cost curves joined together at their lowest points

Question 58

In the short run how many factors are fixed?

Answer 58

At least one

Question 59

In the long run how many factors are fixed?

Answer 59

NONE

Question 60

Do Fixed costs change with output?

Answer 60

NO

Question 61

When do Fixed Costs actually exist?

Answer 61

In the short RUN!

Question 62

What are Fixed Costs?

Answer 62

The costs which don’t vary with changing output.

Question 63

What are Variable Costs?

Answer 63

Costs which depend on the output produced.

Question 64

What’s is the Total Costs (TC) Equation?

Answer 64

Fixed Costs + Variable Costs