Marginal Costs Etc- Micro Flashcards
Normal profit
Minimum level of profit required to break even
Explicit costs
Actual operating costs
Eg rent and wages
Implicit costs
Opportunity cost of using resources on the business instead of elsewhere
Supernormal profit
Profit over and above normal profit
Describe profit maximisation
When firm finds a price and output where marginal revenue= marginal cost
Describe revenue maximisation
When marginal revenue =0
Describe sales maximisation
Average revenue =average cost
Describe consumer surplus
Difference between what a consumer would be willing to pay and the price they actually pay
- area above the equilibrium price but below the demand curve
Describe supply surplus
difference between the price that producers are willing to sell for and the market price
- area below the equilibrium price but above the supply curve
How does Ped affect consumer surplus
When demand is elastic consumer surplus is higher because consumers are able to pay a lower price for the good or service
How does Ped affect supply surplus
When supply is elastic producer surplus is lower because producers are willing to accept a lower price for the good or service
Describe law of diminishing returns in SR
Additional output produced per extra variable input unit will eventually decrease
Productive efficiency
AC at minimum and AC is intersected by MC curve
How to workout average revenue
Total revenue/ output
Motivations for revenue maximisation
Market expansion
= focus on rev will help company gain market share to establish customer base
Survival
= decrease prices will increase revenue to increase cash flow
Attract investors
= strong rev growth will attract more investors
