Firm objectives Flashcards
(10 cards)
Explain the private sector.
Involves assets owned by individuals or groups, NOT the government. It is funded by private payments.
Explain the public sector.
Involves assets owned by the society as a whole, provided by the government. Mainly funded through taxation.
Explain why objectives differ between the private and public sector.
Private sector: has to make a profit to survive-primary objective.
Public sector: firms can survive without making a profit; the government can fund any shortfall in revenue. Other aims are more important.
2 ways of showing profit maximisation.
Where TR & TC are greatest apart OR price - cost per unit x quantity.
How do you calculate profit maximisation using MR & MC?
MR = MC so MR & MC can both = 0 because then they equal each other.
Why is profit maximisation rational?
Profit is the reward for risk taking. So it is rational the risk taker will want the greatest reward possible.
Define marginal revenue (MR).
The change in revenue from selling one more unit of output.
Define marginal cost (MC).
The extra cost of making one more unit of output.
Define marginal profit (MP).
The extra profit gained from selling one more unit. MP=MR-MC
Define ‘firm’.
A production unit that transforms factors of production such as raw materials into goods and services.
