Revenue and Profit Flashcards
Define total revenue
A firm’s total earnings from a specified level of sales within a specified period
Define average revenue
Total revenue per unit of output, when all output is sold at the same price, average revenue will be the same as the price
Define marginal revenue
Extra revenue gained frorm selling one extra unit output
In perfect competition firm explain the average revenue and marginal revenue and normal revenue of a firm and what they will look like
Demand = Average revnue= Marginal revnue which are hosizontal line plotted
Total revnue increases lienarly
What is the formula for total revnue
Average revenue or Price x Quantity
If a firm has downward sloping demand what is the relation between marginal revenue and elasticity
If marginal revenue is positive firm is elastic
What is the relationship between TR and elasticity
Elasticity is -1 at the max point of the TR curve. Firm is elastic up until the maximum point. Past this point it becomes inelastic
What is the formula for average costs
costs per unit produced = Total costs/Quantity
What are marginal costs
the change in Total costs having produced one more unit
Where does profit maximisation Happen - explain graphically - Using TC, TR AND Totla profit curve
The point on the curve of total Profit which the business is making money is when it is positive and above the x-axis. (This occurs when TC
How to identify the point of profit maximisation using intersection of curves
Marginal revenue and marginal costs intersect at the point of profit maximisation
How do we calculate profit
To calculate the profit we use the AC and AR data and their difference
at a particular quantity
Define normal profit
he opportunity cost of being in business. It consists of the interest that could be earned on a riskless asset, plus a return for risk-taking in thisIt is a reasonable assumption to make that you will make that profit.
particular industry
Explain supernormal profit
the excess of total profit above normal profit
Where is the Short-run shut down point for a firm
Firm can only just cover its variable costs (AR curve tangential to AVC curve)
