Theory of the Firm - Costs and revenues

Costs one

• Fixed costs
• Variable costs
• Distinction between short run (SR) & long run (LR)

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=15

Costs two

• Total cost
• Average cost (AC) & marginal cost (MC)
• Accounting cost + opportunity cost = economic cost

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=16

Costs three

•  Law of diminishing returns

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=17

Revenues

• Total revenue, marginal revenue (MR) & average revenue (AR)
• Distinction between normal (zero) profit & supernormal (abnormal) profit
• Profit maximization in terms of total revenue & total costs and in terms of marginal revenue and marginal costs
• Goals for firms: sales volume maximization, revenue maximization & environmental concerns

http://beta.economicspro.eu/vid.php?user=EconomicsPro&video_id=19

Clues for P16, Q2b

Clues for Q2b - feel free to circulate

Explain what is meant by average cost (use diagram page 7).

Reasons for similar firms in an industry having similar costs:

1. Same / similar variable costs (i.e. labour and raw materials);
2. Similarly-sized industrial units (MES)

Reasons why they might not face similar costs:

1. Products are often differentiated
2. Firms may operate in different countries
3. Well-established firms may have advantages
4. Some firms may be run better