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Summary A Level Revision Notes Economics Unit 3 Revenue and Profit
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A Level Revision Notes Economics Unit 3 Revenue and Profit Revision Notes
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Total Revenue Price Quantity Marginal Revenue TRN TRN aTotal revenue Marginal Revenue bTotal revenue
Average Revenue
Quantity D Quantity
receipt per unit
Revenue theory
when there is perfect competition the price is determined by the marke
a
producers cannot choose the price nor will the quantity they produce
influence the price since their production is only a tiny fraction
of total supply
However
when there is only one seller of a good monopoly their production is
the market supply
Hence amount they produce will influence the market price
ertect competition Marginal Average Price
Revenue Revenue
why
Due to the fact that market has a lot of buyers
andsellers neither of them can influence
the market price
Output of one firm is too small compared
to the market to influence theprice Price is
independent of quantity
Price is determined by the intersection of
market supply and market demand
Profit
Profit Total revenue Total cost or MR MC
Business needs to make atleast 0 profit for it to be worth staying in thefirm
Zero Economic Profit Normal
Profit
Additional costs in economists mind
Forgone wages Foregone interest revenue
Entrepreneur could have earned of entrepreneur own money
9 money elsewhere they must invested in the firm
cover this from their firm opportunity cost of their money
for it to be business
worth them
staying in
Opportunity cost of their time
, Nominal Profit
is where the revenue earned by the firms covers all costs both implicitlexplicit
1 GTR
Thus no incentive for the
firm to leave the market as the second
best alternative cannot increase profits
Supernormal Profit Economic or Abnormal profit
profit above and beyond normal
profit
creates incentive for market entry by other firms
Aim of all firms
Profit Maximisation
MC MR
when MC is rising
when P AVC
when 6 units
firm sells
of goods MEMR 10 10
Hence profit hasbeen maximised
maximising profit could
even be a point where the
is making a loss
firm
minimizing it's losses
firms production decisions are revenue
me
based on maximising profit AC
p MR IAR
y
O 0 Q2 Qe Quantity
At Qz MR Mc Profit Maximised
At Qi AR _AC Normal Profit
0 revenue
last
AC
Hi man
in aifctheismoijgiesiiereiennuep.int
Q2Qa Quantity
Host
Revenue
9
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