UNFINISHED Y13 Booklet 4: Costs, Revenues, Profits & Production Process Flashcards
(19 cards)
What are fixed costs? Examples?
costs that do not vary with output (e.g. advertising, rent)
What are variable costs? Examples?
costs that vary with output (e.g. raw materials, packaging)
What are semi-variable costs? Examples?
costs that somewhat vary with output, to an extent (e.g. mobile data)
What is the long run? What happens to costs?
time period in which all factors of production are variable in quantity
all costs become variable, no fixed costs
What is the short run?
time period in which at least one factor of production is fixed in quantity
What is average costs?
What is marginal costs?
cost per unit produced (TC / Q)
cost of one additional unit (Δ TC / Δ Q)
What are imputed costs?
opportunity costs for which no financial payment is made
What is the formula of economic profit?
accounting profit - opportunity costs
What is average revenue (AR)?
What is marginal revenue (MR)?
revenue per unit sold (TR / Q)
revenue of one additional unit (Δ TR / Δ Q)
What do the average revenue (AR) and marginal revenue (MR) curves look like? What are the proportion of their gradients?
MR is 2x as steep as AR
What is the formula of (accounting) profit?
total revenue - total costs
What is normal profit? When does this occur?
the amount of profit for which a firm just covers the opportunity cost of using their factors of production in this way
economic profit = £0
What happens if a firm fails to achieve normal profit?
What happens if a firm exceeds normal profit?
cease production, shifts to more profitable market
economic/abnormal/supernormal profit
What is the production process? What affects production choices made by a firm?
factors of production -> finished products
depends on which factors of production a firm can control
Which factor of production is usually easier/harder to change? Why?
easy - labour, can pay overtime or employ more workers
hard - capital, often expensive and subject to regulations
What is the very/ultra-long run?
time period in which at state of technology may change
What is the law of diminishing marginal returns?
when marginal output falls, per additional unit of labour
What is total physical product?
What is marginal physical product?
total units of output
increase in output per additional unit of labour
How can diminishing marginal returns be overcome?
employ more capital (ONLY in the long run)
