3.3 Revenues,costs and profits

Total revenue

Price x Quantity sold, revenue received from the sale of a given level of output

Marginal revenue

The extra revenue a firm earns from the sale of one extra unit
When MR = 0 total revenue is maximised
When MR = 0 —> PED = 1 so if prices rise or fall TR would fall

Average revenue

The average receipt per unit|
TR/quantity sold
AR curve is the firm’s demand curve because the average revenue curve is the price of the good

Total costs

How much it costs to produce a given level of output
Increase in output results in an increase in total costs
Total costs = total variable costs + total fixed costsT

Total fixed cost

In the short run at least one factor of production cannot change , this means there are some fixed costs
Fixed costs do not vary with output

Total variable cost

In the long run all factor inputs can change, this means all costs are variable
Variable costs change with output, they are direct costs

Marginal cost

How much it costs to produce one extra unit of output
Change in TC / Change in Quantity