revenue cost and profit

• short run= one factor is fixed
• long-run = all factors are variable
• wages are an example of variable cost
• TC= TVC + TFC
• AFC= TFC/Q
• As quantity increases ATC falls
• Marginal cost:


  addition cost of selling one extra unit of a good/ service
• MC= change in TC/ change in Q
• Productivity increases= MC decreases
• Diminishing marginal returns: Short- run more factors of production employed = productivity will eventually diminish
• Long-run = productivity will not diminish
• MC = specialised workers= decrease= DMR= increase MC
• AVC= TVC/Q
• AFC = always falling curve
• monopoly = price makers
• competitive pricing = price takers
• High prices= restrict output= regulation
• OFFWAT= Regulate water, price water industry (RPI- X+K)
• Nationalisation= alloctives efficient = P is MC
• LRAC- as quantity increases LRAC decreases then increases
• Internal economies of scale: firms expand and reduce average costs
• Purchasing economies:

  • Bulking buying reduces costs
  • firms expand - bulk buy- negotiate lower prices
• technical economies 


  small firm- increase productivity - decrease LRAC - decrease costs
• managerial economies:


  big firm - marketing - reduce LRAC- increase productivity
• Financial economies 


  Banks have a low interest rate for more established businesses
• Risk bearing economies 


  large firms - diversity - reduce cost of failure
• Economies of Scale 


  LONG RUN BENEFIT
• Diseconomies of scale:

  A - alienation

  B- bureaucracy

  C- communication
• MES


  minimum efficiency scale firm reaches lowest point of LRAC
• RETURN: output produced by input
• Average is 1 output to make input
• Returns to scale: change in input to change in output
• Profit = TR- TC
• TC ( includes opportunity cost)
• Profit = 0 NORMAL PROFIT
• Normal profit= firm covers opportunity cost if not it will leave market)
• Super normal profit = abnormal profit
• Super normal profit when TR IS MORE THAN TC
• Profit maximisation: MC=MR
• MR-MC = profit