3.3
REVENUE
TOTAL REVENUE
Revenue when selling a given quantity of output
price x quantity
AVERAGE REVENUE
revenue per unit of output
total revenue/output
MARGINAL REVENUE
additional revenue when selling one extra unit of output
change in TR/change in quantity
MR is twice as steep as AR
y-intercept is the same
MR is the gradient of the TR curve
ELASTICITY
when demand is elastic, MR >0
consumers are very responsive to price
cuts, this increases revenue
when demand is unitary elastic, MR=0
extra sales balance out with price cuts
when demand is inelastic, MR<0
consumers unresponsive to price cuts,
revenue falls
3.3 1
, COSTS
COST FORMULAS
TOTAL COST - the cost of producing a given level of output, fixed and variable
costs. TFC +TVC
TOTAL FIXED COST - costs that do not change with output and remain constant,
e.g rent, machinery
TOTAL VARIABLE COST - costs that change directly with output, e.g materials
AVERAGE TOTAL COST - total costs/output
AVERAGE FIXED COST - total fixed cost/output
AVERAGE VARIABLE COST - total variable cost/output
MARGINAL COST - the extra cost of producing one extra unit of good. change in
total cost/change in output
SHORT RUN COST
In the short run, at least one factor of production is fixed and cannot be
changed
The short run is the length of time where at least on FOP is fixed
DIMINISHING MARGINAL PRODUCTIVITY
Initially when more labour are employed, division of labour may increase
productivity
However when more variable factors are continuously added to a given
quantity of fixed factors, marginal productivity falls
3.3 2
REVENUE
TOTAL REVENUE
Revenue when selling a given quantity of output
price x quantity
AVERAGE REVENUE
revenue per unit of output
total revenue/output
MARGINAL REVENUE
additional revenue when selling one extra unit of output
change in TR/change in quantity
MR is twice as steep as AR
y-intercept is the same
MR is the gradient of the TR curve
ELASTICITY
when demand is elastic, MR >0
consumers are very responsive to price
cuts, this increases revenue
when demand is unitary elastic, MR=0
extra sales balance out with price cuts
when demand is inelastic, MR<0
consumers unresponsive to price cuts,
revenue falls
3.3 1
, COSTS
COST FORMULAS
TOTAL COST - the cost of producing a given level of output, fixed and variable
costs. TFC +TVC
TOTAL FIXED COST - costs that do not change with output and remain constant,
e.g rent, machinery
TOTAL VARIABLE COST - costs that change directly with output, e.g materials
AVERAGE TOTAL COST - total costs/output
AVERAGE FIXED COST - total fixed cost/output
AVERAGE VARIABLE COST - total variable cost/output
MARGINAL COST - the extra cost of producing one extra unit of good. change in
total cost/change in output
SHORT RUN COST
In the short run, at least one factor of production is fixed and cannot be
changed
The short run is the length of time where at least on FOP is fixed
DIMINISHING MARGINAL PRODUCTIVITY
Initially when more labour are employed, division of labour may increase
productivity
However when more variable factors are continuously added to a given
quantity of fixed factors, marginal productivity falls
3.3 2
