chapter 20-firms' cost, revenue and objectives

what are fixed costs

costs that do not change with output in the short run

examples of fixed costs

rents, insurance

what are variable costs

costs that change with output

examples of variable costs

raw materials, some labour costs

why does average fixed cost fall as output increases

the same fixed cost is spread over a large number of units

what is revenue

income received by a firm from selling its products

what will happen to revenue if sales increase

total revenue will generally increase, provided the prices does not fall enough to offset the increase in quantity sold

what is profit maximisation

the objective of earning the greatest possible difference between revenue and costs

why might survival be a firm’s objective

new/small firms may prioritise staying in business rather than maximising profit

why might firms want growth

increase market share, increased profit, gain economies of scale, increase market power

why might firms aim for social welfare

some firms aim to provide socially beneficial goods/services rather than simply maximise profit

why might a firm’s objective change over time

different circumstances such as competition, economic condition, firm size and stage of development, change priorities