Revenues, Cost and Profit Flashcards
What is revenue
The money earned from the sales of goods and services
When is a perfectly elastic demand curve achieved
In a perfect competition where firms have no price setting power
What happens to cost usually in the short run
One variable of factors of production is fixed, likely rent
What is fixed cost
A cost that doesn’t change with output
When does all factors of production become variable
At long run
What is diminishing marginal utility
This is when a FoP is fixed, and another factor is variable there comes a point when each extra unit of variable factor will produce less output than the previous unit.
- marginal output would decrease as more inputs are added in the short run resulting in a rise of marginal cost of production.
Why are SRAC and LRAC both U-shaped
SRAC - due to diminishing laws of returns
LRAC - due to economies and diseconomies of scale
What does the below the LRAC and above the LRAC tell you
Below - is unobtainable
Above - inefficient production
How does movement along the LRAC occur
This is when their is a change in output which changes average cost of production due to economies or diseconomies of scale
What is economies of scale
This is the advantage of large scale production that allows to large firms to produce at a lower output. Increase in input lead to greater increase in output as the firm experiences increase returns to scale
What is diseconomies of scale
When firms experience a fall in efficiency which increases average cost. Where output increases by a smaller % than input.
What is the middle area of LRAC called?
Constant return to scales - where increase in input produces the same output
What is the minimum efficient scale?
Minimum level of output needed for a business to exploit EOS. (where LRAC levels off)
What is internal EOS
Growth within a business without external influence
list the types of Internal EOS:
Technical - improve production process
Financial - access to credit
Risk bearing - cross subsidisation
Managerial - specialised managers
Marketing and bulk buying - spread cost to high output
Networking - lower cost from suppliers
