micro year 2 cc1

profit revenue marginal returns costs

total product

total output produced with given inputs

APx Q

average product

the average output produced per unit of input

marginal product

the additional output produced with extra unit of inputs

total cost

total costs a firm must pay

average cost

cost per unit

marginal cost

cost of making one more unit

total fixed costs

costs incurred when output is zero

they dont change with output

average fixed cost

fixed costs per unit

variable cost

variable cost per unit

total revenue

total amount of money a firm receives for a good or service inclusing turnover, sales revenue

short run

time period in which at least 1 fop is fixed

long run

all costs are completely variable as a firm can adjust all inputs and change scale of operation

law of diminishing marginal returns

if a firm adds successive units of a variable factor while holding inputs of at least one other fixed factor, the increase in total output will get smaller - or even decrease

examples of fixed costs

rent

capital machinery

salaries

variable costs examples

labour

raw materials

semi variable costs definition

costs which vary with output but not in direct proportion

examples of semi fixed costs

utilities eg electricity water gas

explain why average fixed costs fall consistently as output increases

fixed costs stay constant regardless of output produced

as output increases, fixed cost is spread over a larger number of units causing cost per unit to decrease

normal profit

profit a firm could make using resources in their next best use

economic cost

financial cost + normal profit

financial cost

costs actually paid out by the firm e.g wages, raw materials

price taker

a firm which has no influence on market price and must sell all output at market price

price maker

a firm which is able to select the price at which it sells its output

-generally sells at lower price

profit maximisation

marginal profit is 0

sales maximisation

highest level of output consistent with normal profit

revenue maximisation

max total revenue

mr= 0

What is the relationship of AR and MR of price takers

equal

both horizontal

What is the relationship of AR and MR of price makers

AR>MR AR downward sloping and MR twice gradient

breakeven

firm covers costs and makes only normal profit