3.3 Revnue, Costs And Profit

Question 1

What is perfect competition?

Answer 1

Perfect competition is a market structure in which individual firms have no market power due to lots of competition and no price setting power

Question 2

What is imperfect competition?

Answer 2

Imperfect competition is a market structure where firms do have some market power and can influence prices

Question 3

What is the total revenue rule?

Answer 3

The total revenue rule states that in order to maximise revenue firms should increase the price of inelastic goods and decrease the prices of elastic goods

Question 4

What is marginal costs?

Answer 4

Marginal costs are the cost of producing an additional unit of output

Question 5

What are some sources of external economies of scale?

Answer 5

Geographic cluster
Transport links
Skilled labour
Favourable legislation

Question 6

What is profit maximisation?

Answer 6

Producing at where MC = MR

Question 7

What is the short run shut down point?

Answer 7

If AR is higher than AVC the firm should keep producing
But if AR falls to AVC (AR = AVC) the firm should shut down n

Question 8

What is the long run shut down point?

Answer 8

If AR is higher than AC (AR>AC) the firm should keep producing
But if AR is equal or lower than AC (AR=AC) the firm should shut down