Economics Unit 3 - The firm: Objectives, Costs and Revenues

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At what point does profit maximisation occur?
MC = MR
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What is satisficing?
Achieving a satisfactory level of output to all members of the firm
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At what point does revenue maximisation occur?
MR = 0
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What conditions may take place for growth maximisation?
May involve mergers/takeovers. Willing to accept lower profits in order to increase market share
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What is the divorce of ownership from control?
Shareholders want to maximise profits (more dividends). Directors want to maximise sales (commision). Directors create a minimum level of profit to keep everyone happy
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How do you calculate total costs?
Total fixed costs + Total variable costs
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How do you calculate average fixed costs?
How do you calculate average fixed costs?
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What is a fixed cost?
The cost of employing the fixed factor of production
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What is a variable cost?
The cost of employing the variable factors of production
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What is a marginal cost?
The cost of producing for one additional unit
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How do you calculate average costs?
Total cost/ Output
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What is the definition of short run?
The time period in which at least one factor of production is fixed
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What is the short run production/cost theory?
Law of diminishing marginal returns
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What is the definition of long run?
The time period in which the scale of the factors of production are variable
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What is the long run production/cost theory?
Returns to scale
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What is increasing returns to scale?
An increase in the factors of production leads to a more than proportionate increase in output
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What is constant returns to scale?
An increase in the factors of production leads to an equal increase in output
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What is decreasing returns to scale?
An increase in the factors of production leads to a less than proportional increase in output
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At what point does the minimum efficient scale occur?
The lowest point on the long run average cost curve
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What 2 factors does the MES affect?
The number of firms in an industry and the structure of markets
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If there is a low MES, will there be a large number of firms or a small number of firms in an industry?
If there is a low MES, will there be a large number of firms or a small number of firms in an industry?
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What are economies of scale?
Falling long run average costs as the size of the firm increases
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What are diseconomies of scale?
Increasing long run average costs as the size of the firm increases
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What are the benefits of technological change?
Improves efficiency and cost saving
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How do you calculate profit?
Revenue - Costs
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What is revenue?
The money a firm receives from selling its output
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Other cards in this set

Card 2

Front

What is satisficing?

Back

Achieving a satisfactory level of output to all members of the firm

Card 3

Front

At what point does revenue maximisation occur?

Back

Preview of the front of card 3

Card 4

Front

What conditions may take place for growth maximisation?

Back

Preview of the front of card 4

Card 5

Front

What is the divorce of ownership from control?

Back

Preview of the front of card 5
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