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Work and Leisure Module

Revision Notes

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· Fixed Costs. - Costs that do not vary with output; e.g. cost of a factory
· Variable Costs: - Costs that do vary with output; e.g. electricity, materials
· Total Costs: - Fixed + variable costs
· Marginal Cost: - This is the cost of producing one extra…

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Diagram of Diminishing Returns

· After Q1 the MP of an
extra worker falls.

· After Q1, the MC of
producing more goods

In the Long Run all factors of production (both capital and labour) are variable.
A firm's long run cost curve (LRAC) is constructed by using…

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their task; this enables greater efficiency. A good example is an assembly line
with many different jobs.
2. Bulk buying: If you buy a large quantity then the average costs will be lower.
3. Technical. When a firm benefits from increased scale of production. For
example, a large machine…

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· Total Revenue (TR): This is the total income a firm receives.
This will equal Price * Quantity
· Average Revenue (AR): TR / Q
· Marginal Revenue (MR) - The increase in revenue from selling an extra unit,
· Profit = Total revenue (TR) ­ Total Costs (TC)…

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1. Profit Satisficing. Managers making enough profit to keep the owners happy.
· In many firms there is separation of ownership and control.
· This is a problem because although the owners may want to maximise
profits, the managers have much less incentive to maximise profits
because they do…

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3. Social / Environmental concerns. A firm may incur extra expenses to choose
products which don't harm the environment or choose products not tested on
animals. This has actually proved quite a good marketing strategy, e.g. for firms
like the Body Shop. Not all production decisions are based on…

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1. This is an industry which is dominated by a few firms. The UK definition of
an oligopoly is a five firm concentration ratio of more than 50%. This means
the combined market share of biggest 5 firms is greater than 50%
2. Interdependence of firms: firms will be…

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Diagram of Kinked Demand Curve

Limitations of this model

1. The model does not explain how prices were set in the first place
2. Price stability may be due to other factors
3. In the real world firms often do cut or increase price. E.g. if firms are


Abbas M.M

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