What is total revenue ?

Total revenue is the total value of all sales generated by a firm.

Define average revenue .

Average revenue is the revenue per unit , or price .

What is marginal revenue ?

Marginal revenue is the extra revenue received from the sale of an additional unit of output.

True or False? In perfect competition, MR = AR = Demand .

True. In perfect competition MR = AR = Demand.

In perfect competition, how does total revenue increase ?

In perfect competition, total revenue increases at a constant rate .

What happens to AR and MR in monopolistic competition?

Both AR and MR fall with additional units of sale in monopolistic competition.

When is total revenue maximised in monopolistic competition?

Total revenue is maximised when output is where MR = 0 in monopolistic competition.

What is the rule for total revenue ?

The rule for total revenue states that to maximise revenue firms should increase the price of products that are price inelastic in demand, and decrease the price of products that are price elastic in demand.

How does price elasticity of demand affect total revenue?

When demand is price elastic a decrease in price increases total revenue . When demand is price inelastic an increase in price increases total revenue.

What is the relationship between the MR and AR curves in monopolistic competition?

The gradient of the MR curve is twice as steep as the AR curve in monopolistic competition.

What are fixed costs ?

Fixed costs are costs that do not change with the level of output .

Define variable costs .

Variable costs are costs that change directly with the level of output .

What does marginal cost mean?

Marginal cost is the cost of producing an additional unit of output .

What is the short-run ?

The short-run is a period of time in which at least one factor of production is fixed .

Define the long-run .

The long-run is a period of time in which all of the factors of production are variable .

What is the law of diminishing marginal productivity ?

The law of diminishing marginal productivity states that in the short run , as more of a variable factor is added to fixed factors, there will initially be an increase in productivity . A point will be reached where adding additional units begins to decrease productivity .

How are the shapes of short-run cost curves determined?

The shapes of short-run cost curves (AC, AVC & MC) are determined by the law of diminishing marginal productivity .

What is the relationship between marginal product and marginal costs ?

There is an inverse relationship between marginal product and marginal costs. As marginal product increases , marginal costs decrease .

Where does the MC curve cross the AVC and AC curves ?

The MC curve crosses the AVC and AC curves at their lowest points .

What is the long-run average cost curve (LRAC) ?

The long-run average cost curve (LRAC) is the line of best fit between the lowest points of the short-run ATC (SRAC) curves .

What are economies of scale ?

Economies of scale are the benefits a firm receives from increasing its levels of output in the long run . This causes its long-run average total costs (LRAC) to decrease .

What is meant by diseconomies of scale ?

Diseconomies of scale are an increase in long-run average total costs (LRAC) . This is caused by a firm increasing its level of output beyond the point of its lowest LRAC .

What are increasing returns to scale ?

Increasing returns to scale occur when a firm is enjoying economies of scale .

Define decreasing returns to scale .

Decreasing returns to scale occur when a firm is facing diseconomies of scale .

What is the minimum efficient scale ?

The minimum efficient scale is the lowest cost point on a long-run average total cost (LRAC) curve .

True or False? All economies of scale are internal .

False. Economies of scale can be internal or external .

What are external economies of scale?

External economies of scale occur when there is an increase in the size of the industry in which the firm operates. This allows the firm to benefit from lower LRAC generated by factors outside of the firm.

How does a geographical cluster contribute to external economies of scale?

A geographical cluster contributes to external economies of scale as supporting firms move closer to major businesses . This cuts costs and generates more sales , lowering the LRAC . An example is Silicon Valley in California, USA .

What is a source of external economies of scale related to labour ?

An increase in skilled labour can lower the cost of skilled labour . This decreases the LRAC which is a source of external economies of scale.

How can legislation affect external economies of scale?

Favourable legislation can generate significant reductions in LRAC . Governments may support some industries helping them gain external economies of scale.

True or False? Increasing and decreasing returns to scale only happen in the long run .

True. Increasing and decreasing returns to scale only happen in the long run.

What determines the shape of long-run cost curves (LRAC) ?

Economies and diseconomies of scale determine the shape of long-run cost curves.

What is the condition for profit maximisation ?

The condition for profit maximisation is that a firm has to produce at the level of output where marginal cost (MC) = marginal revenue (MR) .

Define direct costs .

Direct costs can be traced to the production of a good or service, such as raw materials and wages .

What are indirect costs ?

Implicit costs cannot be matched against a product because they need to be paid whether or not production takes place. For example, rent on premises.

What is normal profit ?

Normal profit occurs when total revenue (TR) = total costs (TC) . It is the minimum amount of profit a firm must make to remain in the industry in the long-run .

Define supernormal profit .

Supernormal profit occurs when total revenue (TR) is greater than total costs (TC) .

When does a loss occur?

A loss occurs when total revenue (TR) is less than total costs (TC) .

What is the short-run shut down point ?

The short-run shut down point is when the selling price (average revenue) equals the average variable cost (AVC) .

When should a firm shut down in the short-run ?

A firm should shut down in the short-run if the selling price (AR) is below the average variable cost (AVC) .

What is the long-run shut down point ?

The long-run shut down point is when the selling price (AR) is equal to or below the average total cost (AC) .

True or False? A firm should always shut down if it's making a loss .

False. A firm may continue operating in the short run if Average Revenue (AR)>Average Variable Costs (AVC) , even though it is not covering its fixed costs .

What costs are considered when calculating profits?

Direct and indirect costs of production are considered when calculating profits.

A LevelEconomicsEdexcelEconomics AFlashcards3. Business Behaviour & the Labour Market3.3 Revenues, Costs & Profits

3.3 Revenues, Costs & Profits (Edexcel A Level Economics A)

Flashcards

1/48

FrontRevenue
What is total revenue?

Enjoying Flashcards?
Tell us what you think

Cards in this collection (48)

What is total revenue?
Total revenue is the total value of all sales generated by a firm.
State the formula for total revenue.
Total revenue (TR) is calculated using the formula:
$Selling price (P) \times Quantity sold (Q)$
Define average revenue.
Average revenue is the revenue per unit, or price.
What is marginal revenue?
Marginal revenue is the extra revenue received from the sale of an additional unit of output.
True or False?
In perfect competition, MR = AR = Demand.
True.
In perfect competition MR = AR = Demand.
In perfect competition, how does total revenue increase?
In perfect competition, total revenue increases at a constant rate.
What happens to AR and MR in monopolistic competition?
Both AR and MR fall with additional units of sale in monopolistic competition.
When is total revenue maximised in monopolistic competition?
Total revenue is maximised when output is where MR = 0 in monopolistic competition.
What is the rule for total revenue?
The rule for total revenue states that to maximise revenue firms should increase the price of products that are price inelastic in demand, and decrease the price of products that are price elastic in demand.
How does price elasticity of demand affect total revenue?
When demand is price elastic a decrease in price increases total revenue. When demand is price inelastic an increase in price increases total revenue.
True or False?
AR is the demand curve.
True.
AR is the demand curve.
What is the relationship between the MR and AR curves in monopolistic competition?
The gradient of the MR curve is twice as steep as the AR curve in monopolistic competition.
What are fixed costs?
Fixed costs are costs that do not change with the level of output.
Define variable costs.
Variable costs are costs that change directly with the level of output.
What does marginal cost mean?
Marginal cost is the cost of producing an additional unit of output.
State the formula for total costs.
Total costs (TC) are calculated using the formula:
$Total fixed costs (TFC) + Total variable costs (TVC)$
How is average total cost calculated?
Average total cost (AC) is calculated using the formula:
$\frac{Total cost (TC)}{Quantity (Q)}$
What is the short-run?
The short-run is a period of time in which at least one factor of production is fixed.
Define the long-run.
The long-run is a period of time in which all of the factors of production are variable.
What is the law of diminishing marginal productivity?
The law of diminishing marginal productivity states that in the short run, as more of a variable factor is added to fixed factors, there will initially be an increase in productivity. A point will be reached where adding additional units begins to decrease productivity.
How are the shapes of short-run cost curves determined?
The shapes of short-run cost curves (AC, AVC & MC) are determined by the law of diminishing marginal productivity.
What is the relationship between marginal product and marginal costs?
There is an inverse relationship between marginal product and marginal costs. As marginal product increases, marginal costs decrease.
Where does the MC curve cross the AVC and AC curves?
The MC curve crosses the AVC and AC curves at their lowest points.
What is the long-run average cost curve (LRAC)?
The long-run average cost curve (LRAC) is the line of best fit between the lowest points of the short-run ATC (SRAC) curves.
What are economies of scale?
Economies of scale are the benefits a firm receives from increasing its levels of output in the long run. This causes its long-run average total costs (LRAC) to decrease.
What is meant by diseconomies of scale?
Diseconomies of scale are an increase in long-run average total costs (LRAC). This is caused by a firm increasing its level of output beyond the point of its lowest LRAC.
What are increasing returns to scale?
Increasing returns to scale occur when a firm is enjoying economies of scale.
Define decreasing returns to scale.
Decreasing returns to scale occur when a firm is facing diseconomies of scale.
What is the minimum efficient scale?
The minimum efficient scale is the lowest cost point on a long-run average total cost (LRAC) curve.
True or False?
All economies of scale are internal.
False.
Economies of scale can be internal or external.
What are external economies of scale?
External economies of scale occur when there is an increase in the size of the industry in which the firm operates. This allows the firm to benefit from lower LRAC generated by factors outside of the firm.
How does a geographical cluster contribute to external economies of scale?
A geographical cluster contributes to external economies of scale as supporting firms move closer to major businesses. This cuts costs and generates more sales, lowering the LRAC. An example is Silicon Valley in California, USA.
What is a source of external economies of scale related to labour?
An increase in skilled labour can lower the cost of skilled labour. This decreases the LRAC which is a source of external economies of scale.
How can legislation affect external economies of scale?
Favourable legislation can generate significant reductions in LRAC. Governments may support some industries helping them gain external economies of scale.
True or False?
Increasing and decreasing returns to scale only happen in the long run.
True.
Increasing and decreasing returns to scale only happen in the long run.
What determines the shape of long-run cost curves (LRAC)?
Economies and diseconomies of scale determine the shape of long-run cost curves.
What is the condition for profit maximisation?
The condition for profit maximisation is that a firm has to produce at the level of output where marginal cost (MC) = marginal revenue (MR).
Define direct costs.
Direct costs can be traced to the production of a good or service, such as raw materials and wages.
What are indirect costs?
Implicit costs cannot be matched against a product because they need to be paid whether or not production takes place. For example, rent on premises.
How is profit calculated?
Profit is calculated using the formula:
$Total revenue (TR) - Total costs (TC)$
What is normal profit?
Normal profit occurs when total revenue (TR) = total costs (TC). It is the minimum amount of profit a firm must make to remain in the industry in the long-run.
Define supernormal profit.
Supernormal profit occurs when total revenue (TR) is greater than total costs (TC).
When does a loss occur?
A loss occurs when total revenue (TR) is less than total costs (TC).
What is the short-run shut down point?
The short-run shut down point is when the selling price (average revenue) equals the average variable cost (AVC).
When should a firm shut down in the short-run?
A firm should shut down in the short-run if the selling price (AR) is below the average variable cost (AVC).
What is the long-run shut down point?
The long-run shut down point is when the selling price (AR) is equal to or below the average total cost (AC).
True or False?
A firm should always shut down if it's making a loss.
False.
A firm may continue operating in the short run if Average Revenue (AR)>Average Variable Costs (AVC), even though it is not covering its fixed costs.
What costs are considered when calculating profits?
Direct and indirect costs of production are considered when calculating profits.