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3.2 and 3.3 (Revenue (Average Revenue (Shows the revenue per unit sold, AR…
3.2 and 3.3
Revenue
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If demand is elastic and price increases, the quantity demanded will fall. The effect on TR on how elastic the demand is
Costs
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Fixed Cost
In the SR, at least 1 factor of production cannot change
For example, raw materials and rent
Variable Cost
In the LR, all factor inputs can change
For example, moving factory
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Profit Maximisation
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Reasons:
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In SR, shareholders want to maximise gain from company
In LR, will provide a stable price and output
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Revenue Maximisation
This occurs when MR=0, meaning each extra unit sold generates no extra revenue
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Sales Maximisation
When a firm aims to sell as much of their goods and services as possible without making a loss. AC = AR
Reasons
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High level of profitability might attract other firms into the market, so by cutting prices and selling more, new entry is prevented
Satisficing
Is making enough profit to keep shareholders happy, after which managers can aim for other objectives.
Reasons
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Firms may wish to keep profits down to avoid being taken over by other firms, the manager might get satisfied by having control
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