Revenues Costs And Profit Flashcards
(19 cards)
What affects unit costs?
Unit costs vary depending on the level of output. As firms sell more, they utilize their capacity better and can negotiate bulk buying of raw materials, reducing unit costs.
What is the benefit of increasing output for firms?
Firms benefit from economies of scale (EOS) as output rises.
How do firms price larger quantities?
When selling in larger quantities, firms may charge different prices to customers ordering larger quantities.
What is Total Revenue (TR)?
Total Revenue (TR) is the money coming into the firm, also known as turnover or the total value of sales.
TR = Price per unit x Quantity
What is Average Revenue (AR)?
Average Revenue (AR) is the price per unit, calculated as total revenue divided by output. The AR curve is the same as the demand curve.
AR = TR divided by Quantity
What is Marginal Revenue (MR)?
Marginal Revenue (MR) is the change in revenue from selling one extra unit of output.
MR = change in TR divided by change in quantity.
What is the Short Run (SR) in production?
SR is where there is at least one FIXED factor of production (i.e. Land, capital usually). Labour is usually variable.
Example: In a chicken shop, the land (premises) is fixed for 3 workers, while the workers are variable.
What is the Long Run (LR) in production?
LR is where all factors of production are variable, allowing the firm to benefit from economies of scale.
In the long run, businesses can change the scale of production.
What are the characteristics of the Short Run?
In the short run, at least one of the factor inputs is fixed (usually capital but can also be land). Businesses are constrained with fixed and variable factors.
What are the characteristics of the Long Run?
In the long run, all factors of production are variable, and the scale of production can change.
What are total variable costs (VC)?
Costs which vary with output, for example, raw materials and power for machinery.
VC = AVC X QUANTITY
What is a semi-variable cost?
A cost which contains within it a fixed cost element and a variable cost element.
What are total fixed costs (FC)?
Costs that do not vary with output, for example, rent, rates, heating, and lighting.
Fixed costs must be paid even if output is zero.
What are total costs (TC)?
VC plus FC.
What is average cost (AC)?
The cost of making one item/unit.
TC divide output.
What is average fixed cost (AFC)?
These are the FC per unit.
FC divide output.
What is average variable cost (AVC)?
These are the variable costs per unit.
VC divide output.
What is marginal cost (MC)?
The change in TC from increasing output by one extra unit.
Change in TC divide Change in output.
What are unit costs?
Average costs.
In Economics, the cost of making one unit is very important. This is called the average cost or unit cost.
