Chapter-22 Flashcards
Firms, cost, revenue and objectives (16 cards)
What is total cost?
The total amount spent on all factors of production used to make a product.
What is average total cost?
Total cost divided by output.
What are fixed costs?
Costs that do not change with output in the short run.
What is average fixed cost?
Total fixed cost divided by output.
What are variable costs?
Costs that change with output.
What is average variable cost?
Total variable cost divided by output.
What is the long run in economics?
A time period when all factors of production can be changed and all costs are variable.
What is price?
The amount of money that must be paid to obtain a product.
What is total revenue?
The total amount of money received from selling a product.
What is average revenue?
Total revenue divided by the quantity sold.
What is profit satisficing?
Sacrificing some profit to achieve other goals.
What is profit maximisation?
Making as much profit as possible.
What are the key objectives a firm may pursue?
i) Survival: Staying in the market and covering costs during difficult times.
ii) Growth: Expanding the firm to gain advantages like economies of scale and increased market share.
iii) Social Welfare: Prioritizing societal benefits, such as affordable goods or environmental responsibility.
iv) Profit Satisficing: Earning enough profit to satisfy shareholders while focusing on other goals.
v) Profit Maximisation: Aiming to achieve the highest possible profit over time.
What are the effects of an increase in profit?
i) Encourages new firms to enter the market.
ii) Provides finance for investment and expansion.
iii) Makes it easier to obtain external finance.
iv) Attracts skilled managers and directors.
What are the effects of a fall in profit?
i) May have little effect in the short run.
ii) In the long run, may lead to reduced or stopped production.
What are the two fundamental ways of increasing profit?
i) Reduce costs of production
ii) Raise revenue
