Revenues, Costs and Profits (Revision Quizlet Activity)

Average Cost (AC): Cost per unit of output = Total cost / output = TC/Q.

Average Fixed Cost (AFC): Fixed cost per unit of output = TFC/Q.

Average Revenue: Revenue per unit of output = TR/Q. Also known as price per unit.

Average Variable Cost: Variable cost per unit of output = TVC/Q.

Break-even output: When price = average total cost (P=AC). Normal profits made.

Economies of scale: Falling long run average cost as output increases in the long run.

Fixed costs: Costs that do not vary directly with the quantity of output produced

Long run: A period of time when all inputs are variable, and a business can change the scale of production

Marginal cost: The change in total costs from increasing output by one extra unit.

Marginal profit: The increase in profit when one more unit is sold or the difference between MR and MC

Marginal revenue: Revenue earned from selling the last unit of output

Normal profit: Normal profit is the minimum reward necessary to keep an entrepreneur in her present industry

Profit per Unit: Known as the profit margin = AR - ATC

Profit maximisation: Occurs when marginal cost = marginal revenue (MC=MR).

Retained profit: Profit kept by a business for its own use which is not paid back to shareholders or paid in tax to the government

Short run: A time period where at least one factor of production is in fixed supply

Shut down price: In the short run a firm will continue to produce so long as price per unit > or equal to average variable cost (P>AVC).

Sunk costs: Costs that cannot be recovered if a business decides to leave an industry

Supernormal profit: When its profit is above that required to keep resources in their present use when price > average cost (P>AC). Also called abnormal profit.

Variable costs: Costs that vary directly with output since more variable inputs are required to increase supply.