cost revenue and profit

• total revenue is the income received at any given level of output
• total revenue = quantity x price
• average revenue is the revenue per unit sold
• average revenue is the price
• average revenue = total revenue / quantity
• marginal revenue is the income gained per additional unit produced
• marginal revenue = change in total revenue / change in quantity
• as output increases total revenue increases
• when a firm is a price taker and price is constant AR curves and MR curves will be the same and perfectly elastic
• firms may wish to decrease price in order to increase revenue. this is because past a certain point demand stops being price inelastic meaning that further increases in price will cause the firm to loose demand. by decreasing the price firms can continue to increase sales and by extension revenue
• when a firm is a price maker both AR and MR will fall as sales increase
• as a firm seeks to sell more they eventually decrease their price. this explains why MR falls as revenue increases. this means that for each additional unit sold additional revenue is falling
• average revenue will also fall with each additional unit sold. this is because AR = price and price is falling to increase total revenue
• total revenue is maximised where MR = zero
• total revenue is maximised where MR = zero because past this point the firm will make a loss on every additional unit sold
• when demand is price elastic an increase in price will result in a fall in revenue
• when demand is price inelastic an increase in price will result in an increase in revenue
• cost includes both the cost of factors of production needed to produce a good and the opportunity cost of doing so
• fixed costs don't vary with output
• variable costs vary with output
• total costs are all the costs involved with producing a given output
• Total cost = total variable cost + total fixed cost
• total fixed costs refer to all the costs that do not vary with output
• total fixed costs = total costs - total variable costs
• total variable costs are all the costs that vary with output
• total variable cost = total costs - total fixed costs
• average total cost is the total cost per unit produced
• average total cost = total cost / quantity
• average fixed cost is the total fixed cost per unit produced
• average fixed cost = total fixed cost / quantity
• average variable cost is the variable cost per unit produced
• average variable cost = total variable cost / quantity
• marginal cost is the cost of producing one additional unit
• marginal cost = change in total cost /change in quantity
• the short run is the period of time where at least one of a firms factors of production is fixed
• in the short run diminishing productivity of factors of production occurs. this is because when variable factors increase in productivity they are eventually held back by the fixed factor
• in the short run average costs will initially fall because of the increased production of variable factors. however, at a certain point marginal costs will begin to increase due to diminishing productivity. the increase in marginal cost will cause the average costs to increase
• in the long run all factors of production are variable. this means that diminishing returns to productivity no longer apply, allowing returns to scale and decreased marginal costs to occur
• internal economies of scare occur when scale of production within a firm increases
• external economies of scale occur when the industry that a firm operates within grows