How do you work out average fixed costs?
Total fixed costs / output
What are marginal costs?
Cost of producing an additional unit of output
What are relevant costs?
Costs used to make decisions on the investment
What are sunk costs?
Irrelevant when making decisions
What is the MES?
Minimum Efficiency Scale - the sclae of production where the long run average cost curve is at its lowest point
What is productive efficiency?
Where no additional output can be produced from the factor inputs available at the lowest possible average/unit cost
What is marginal revenue and how is it calculated?
Addition to a firm’s total revenue from selling an additional unit of output
change in total revenue / change in output`
What are the roles of profit?
- Creation of business incentives
- Creates workers incentives
- Creation of shareholder incentive
- Profits/resource allocation
- Profit and economic efficiency
- Profit as a reward for risk taking
- Profit as a source of business finance
- Profit to hint at the economy
What is technological change?
The process of innovation, invention and the use of technology used in society
What is invention?
Development of an idea into a new product
What is innovation?
Creation of a market in order to make a profit
How can technical change increase the number of firms in an industry?
- reduces barriers to entry
- greater scope for competition
- reduces monopoly power
