Costs, Revenues & Profit
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1 Revenue
a) Formulae to calculate and understand the relationship between: • total revenue • average revenue • marginal revenue.
b) Price elasticity of demand and its relationship to revenue concepts, including calculations.
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2 Costs
a) Derivation of short-run cost curves from the assumption of diminishing marginal productivity.
b) The law of diminishing returns.
c) Formulae to calculate and understand the relationship between:
• total cost • total fixed cost • total variable cost
• average (total) cost • average fixed cost • average variable cost
• marginal cost.
d) The relationship between:
• marginal product and marginal costs
• average products and average cost
• total product and total cost
• short-run and long-run costs.
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3 Economies and diseconomies of scale
a) The relationship between long-run cost curves and economies/diseconomies of scale.
b) Minimum efficient scale.
c) Distinction between internal/external economies of scale.
d) Sources of internal economies of scale:
• financial • technical • managerial • marketing • purchasing • risk bearing.
e) Sources of external economies of scale:
• availability of skilled labour • access to transport links • sharing knowledge.
f) Sources of diseconomies of scale:
• communication problems • coordination problems • X-inefficiency.
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4 Profits and losses
a) The distinction between normal profit, supernormal profit and losses.
b) Short-run and long-run shutdown points
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