EconomicsCode 9708
Types of cost, revenue and profit, short-run and long-run production
What this topic asks you to be able to do
- the short-run production function: telling apart fixed and variable factors of production; defining and working out total, average and marginal product; the law of diminishing returns, also known as the law of variable proportions
- the short-run cost function: what fixed costs (FC) and variable costs (VC) are and how to work them out; what total, average and marginal costs (TC, AC, MC) are and how to work them out, including average total cost (ATC), total fixed cost and average fixed cost (TFC, AFC), and total variable cost and average variable cost (TVC, AVC); why the average cost curve and the marginal cost curve are shaped as they are in the short run
- the long-run production function: where no factor of production is held fixed; returns to scale
- the long-run cost function: why the long-run average cost curve has the shape it does; what minimum efficient scale means
- how economies of scale link to falling average costs
- economies of scale, both internal and external in origin
- diseconomies of scale, both internal and external in origin
- how to define and work out total, average and marginal revenue (TR, AR, MR)
- how normal, subnormal and supernormal profit are each defined
- how to find the figures for supernormal and subnormal profit