Revenue, Costs, and Profit Economics Review

Vocabulary flashcards covering core concepts of revenue, cost, profit, and output decision rules from the lecture notes.

Profit

The difference between total revenue and total costs, with the formula $\text{Profit} = \text{TR} - \text{TC}$.

Total Revenue (TR)

The total income from selling goods or services.

Total Cost (TC)

The total cost of producing a given output.

Fixed Costs

Costs that do not change with output in the short run.

Variable Costs

Costs that change as output changes.

Average Revenue (AR)

Total revenue divided by quantity sold.

Average Cost (AC)

Total cost divided by output.

Average Profit

The profit per unit of output, calculated using the formula $\text{AR} - \text{AC}$.

Normal Profit

The minimum profit needed to keep resources in their current use, occurring when $\text{AR} = \text{AC}$.

Supernormal Profit

Profit earned above normal profit, occurring when $\text{AR} > \text{AC}$.

Loss

The financial state resulting when average revenue is less than average cost ($\text{AR} < \text{AC}$).

Total Profit Formula

$$(\text{AR} - \text{AC}) \times \text{Output}$$

Profit-Maximising Rule

A firm produces where $\text{MR} = \text{MC}$, with $\text{MC}$ rising through $\text{MR}$.

Marginal Revenue (MR)

The additional revenue from selling one more unit.

Marginal Cost (MC)

The additional cost of producing one more unit.

Shutdown Point

The level of output where price equals average variable cost ($\text{AVC}$).

Loss-Making Firm Operation

A condition allowing a firm to continue operating while making a loss, provided revenue covers variable costs and contributes towards fixed costs.

Long-Run Supernormal Profit in Perfect Competition

The outcome where new firms enter the market, increasing supply and reducing profit.