| What is a:
1. Firm
2. Industry
3. Market | 1. A Firm is a Business Organisation. Ie a Family-run Dental Practise
2. Industry is all Firms making similar Goods
3. Market has all the firms Providing a Specific Goods and the People buying it. Supply and Demand |
| How do Firms get Revenue in a nutshell? | -Firms get Revenue by selling their Output. Output is Produced by using the Factors of Production. |
| What is Profit? | -This is a Firm’s Total Revenue Minus its Total Costs. This is essential for the Long Run |
| What is an Economic Cost (of Producing the Output?) | -Economic Costs has the Money Cost of the Factors of Production that has to be paid (Wages)
-But also includes the Opportunity Cost of Factors that aren’t paid for (Home Office)
-The Opportunity Cost of a Factor of Production is the Money that could have been gained by putting it to the next Best Use.
-This Economic Cost demonstrates all the Effort and Resources in Production. |
| What is the Short Run? | -The Short Run is the span of time where One Factor of Production (usually Land or Capital) is Fixed
-There is no set amount of Time as it can vary across the Industry. Depends on the Cost, Technology and Speed of Implementation. |
| What is the Long Run? | -This is when all Factors of Production is Varied. Simple |
| What are
1. Fixed Costs
2. Variable Costs
(Note in the Long Run all Costs are Variable: they can move, change scale of Production or adapt) | 1. Fixed cost do NOT change with Output in the Short Run. Have to be paid under any circumstances (Rent)
2. Variable costs DOES change with Output. Thus is influenced by output (Raw Materials) |
| What is Total Cost? | -This is ALL Costs involved in Production a Certain Amount
-Variable Costs plus Fixed Costs
TC = TFC + TVC |
| What is Average Cost (Average Total Cost) | -This is the Cost per Unit Made
-Divide TC by Quantity (Q) produced.
-Can also Find Average Variable Cost (TVC / Q) and Average Fixed Cost (TFC / Q) (Note: AFC goes DOWN as Q goes up as TFC does not change as Q rises) |
| What is Marginal Cost? | -This is the Extra Cost to the Firm as a result of Producing the Final Unit of Output
-Cost of Producing one more Unit of Output
-MC = Change in TC / Change in Q (This may not give you Final Unit, but the point remains still) |
| How can Marginal Products be affected? | -Only by Variable Costs can it be affected as Fixed Costs must be paid under any Circumstances. |
| What happens when
1. MC is LOWER than AC
2. MC is HIGHER than AC
3. MC INTERSECTS with AC | 1. The Average Cost will be Falling as each Unit made is Less than the Average, thus it falls
2. Same story as1, but because it’s Higher than Average Price it Pushes up AC
3. MC meets AC when AC is at the Lowest Average Cost - Point of Productive Efficiency |
