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  2.  
  3. PEARSON (PEARSON)
  4.  
  5. Economics A
  6.  
  7. Unit 3 - Business behaviour and the labour market

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A* summary on cost, revenue and profit

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  • Course
  • Unit 3 - Business behaviour and the labour market
  • Institution
  • PEARSON (PEARSON)
  • Book
  • Edexcel AS/A level Eco 6th edition Student Book

EXAM IS COMING!!!!! This is everything you need for this topic! I got A* studying this, soooooo it will probably reduce your time and effort to find a tutor and it will be more beneficial than your class notes!!! Check out for other summaries in my uploads.

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  • Yes
  • January 20, 2023
  • 5
  • 2022/2023
  • Summary

Subjects

  • cost
  • revenue
  • production
  • profit

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3.3.1 Revenue
a) Formulae
1. TR PxQ
2. AR TR / Q
3. MR Change in TR / Change in Q (gradient of TR)


Price maker:
Have the ability to control prices
 max TR at where D=AR =-1

Price taker:
AR = MR

, 3.3.2 Costs
a) Formulae
1. TC TVC + TFC
2. TFC Costs that do not vary directly with output
3. TVC Costs that varies directly with output
4. AC / ATC TC / Q (U shaped becoz when MC below, dragging average down)
5. AFC TFC / Q
6. AVC TVC / Q
7. MC Change in TC / change in Q (gradient of TC)


Law of diminishing marginal return (only SR, coz LR is called EOS)
Def: When a variable factor is added to a fixed amount of fixed factors, eventually
MC and AC rises // MP & AP falls


b) Derivation of short-run cost curves from the assumption of diminishing
marginal productivity
1st: a variable unit is added to a fixed input, output increases
2nd: after adding certain no. of variable input, output becomes constant (cannot further
increase) maybe becoz workers become less productive
3rd: Then, when variable input further increase, the marginal increase in output starts
to fall, MP and AP falls //where MC and AC start to rise

Why MC is U shaped?
The marginal cost curve is U-shaped. Initially, as output increases,
the marginal cost falls. But diminishing returns start to take place
at a certain level, and so marginal cost will start to rise.


a) Relationship between short-run and long-run average cost curves
SRAC minimum = capacity VS LRAC minimum = MES (lowest AC pt)
SRAC = at least one fixed factor
LRAC = all factors are variable


*************EOS only in LR*************

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