Objectives of firms Flashcards
(68 cards)
total revenue d
what the firm receives for the sale of its product
how do you work out total revenue
price x number sold
how do you work out average revenue
total revenue divided by number sold
when is there profit
when total revenue is greater than total costs
marginal revenue d
the addition to total revenue from the production of one extra unit
which curve is the demand curve
average revenue
how do you work out MR
difference in total revenue divided by difference in output
what is the point of revenue maximisation
when MR = 0
why does total revenue fall beyond MR = 0
because marginal revenue is negative so extra units reduce total revenue
what is assumed about firms
that they always try to maximise profits
what is the point of profit maximisation
where MC = MR
why is MC = MR the point of profit max
because beyond that the addition of an extra unit adds more to costs than revenue so profits will fall
total profit d
total revenue minus total costs
normal profit d
the amount required to keep a factor employed in its present activity in the long run
what does normal profit include
opportunity cost of using any factor of production
supernormal profits
a return above normal profit, surplus payment
what are supernormal profits an incentive for
firms to enter the industry
what can supernormal profits indicate
a lack of competition in the industry
what can negative or falling profits indicate
oversupply
satisficing d
the firm is producing satisfactory but not maximum profit
what is in the interests of shareholders
keep costs as low as possible and maximise profits
what is the divorce of ownership and control
shareholders own the business and want to maximise profit however managers may have different interests
director d
an individual elected by a company’s shareholders to set corporate policies
what may directors and managers be more concerned with
job security, larger salary (size of business) and other ‘perks’
