3.3

• What is revenue in a business context?


  Revenue is the money earned from the sale of goods and services.
• What is total revenue (TR)?

  Total revenue is the total amount of money coming into the business through the sale of goods and services.
• How is total revenue calculated?

  Total revenue is calculated as quantity multiplied by price.
• What is average revenue (AR)?

  Average revenue is the total revenue divided by output.
• What does marginal revenue (MR) represent?


  Marginal revenue is the extra revenue earned from selling one more unit of production.
• How can marginal revenue be calculated?

  Marginal revenue can be calculated as the change in total revenue divided by the change in output.
• What is a perfectly elastic demand curve?

  A perfectly elastic demand curve means firms have no price-setting power and the price received is constant.
• What does it mean when MR=AR=D?


  It means that marginal revenue, average revenue, and demand are equal in perfectly competitive markets.
• What is the shape of the total revenue (TR) curve in perfect competition?


  The TR curve is upward sloping because prices are constant, leading to higher revenue as more goods are sold.
• How does the demand curve behave for most goods?

  For most goods, the price decreases as output increases, resulting in a downward sloping demand curve.
• What is the relationship between the demand curve and the average revenue (AR) curve?


  The demand curve for the firm is the same as the firm’s AR revenue curve, indicating the price consumers are willing to pay.

  
• What happens to marginal revenue when it is positive?


  When marginal revenue is positive, total revenue grows as the firm sells the product at a lower price or increases output.
• What does it indicate when marginal revenue is negative?


  When marginal revenue is negative, total revenue decreases as price decreases or output increases, indicating an inelastic demand curve.

  
• What does it mean when MR=0?


  When MR=0, total revenue is maximized, and the demand curve is unitary elastic.
• Why is the TR curve U-shaped?


  The TR curve is U-shaped because total revenue rises with output initially (when MR is positive) but then begins to decline (when MR is negative).
• What is the economic cost of production?

  The economic cost of production is the opportunity cost of production.
• What distinguishes short-run costs from long-run costs?

  In the short run, at least one factor of production is fixed, while in the long run, all costs are variable.

  
• What is total cost (TC)?


  Total cost is the cost of producing a given level of output, which includes fixed and variable costs.
• What are total fixed costs (TFC)?


  Total fixed costs are costs that do not change with output and remain constant.
• What are total variable costs (TVC)?


  Total variable costs are costs that change directly with output.
• What is average (total) cost (ATC)?

  Average (total) cost is total costs divided by output.
• What is average fixed cost (AFC)?


  Average fixed cost is total fixed cost divided by output.
• What is average variable cost (AVC)?


  Average variable cost is total variable cost divided by output.
• What is marginal cost (MC)?


  Marginal cost is the extra cost of producing one extra unit of a good.
• How can marginal cost be calculated?


  Marginal cost can be calculated as the change in total cost divided by the change in output.
• What is the short run in production terms?


  The short run is the length of time when at least one factor of production is fixed and cannot be changed.
• What is diminishing marginal productivity?


  Diminishing marginal productivity occurs when adding more of a variable factor results in less additional output due to a fixed factor.
• What does the Law of Diminishing Returns state?


  The Law of Diminishing Returns states that adding more labor will eventually yield less additional output as fixed factors limit production.

  
• How does marginal output behave as more inputs are added in the short run?


  Marginal output will decrease as more inputs are added in the short run, leading to rising marginal costs.
• What happens to the average fixed cost curve (AFC) as output increases?

  The average fixed cost curve starts high and falls as output increases because fixed costs are spread over more units.

  
• Why is the average total cost curve (ATC) U-shaped?


  The average total cost curve is U-shaped due to the law of diminishing marginal productivity, where costs initially fall and then rise as production expands.

  
• How does the average variable cost curve (AVC) behave as output increases?

  The average variable cost curve is U-shaped and gets closer to the ATC as output increases since AFC decreases.
• What is the shape of the marginal cost (MC) curve?


  The marginal cost curve is U-shaped due to the law of diminishing marginal productivity, initially falling and then rising as production increases.

  
• How does marginal cost relate to average cost (AC)?


  The marginal cost line will cut the AC line at the lowest point on the AC curve.
• What happens to average costs when marginal costs are below average costs?


  If marginal costs are below average costs, then average costs will continue to fall.
• Can marginal costs rise while average costs are still falling?


  Yes, marginal costs can rise while average costs are still falling as long as marginal costs are below average costs.

  
• What does a straight diagonal line in the total cost curve indicate?


  A straight diagonal line in the total cost curve indicates that average costs are constant.
• What happens to average costs when output is zero?


  When output is zero, fixed costs are equal to total costs since there are no variable costs.
• How can average costs be determined from the total cost curve?

  Average costs can be determined from the total cost curve by finding the slope at a given point.
• What is the relationship between short-run average cost (SRAC) curves and long-run average cost (LRAC) curves?

  SRAC curves are U-shaped due to diminishing returns, while LRAC curves are U-shaped due to economies and diseconomies of scale.