Costs, revenues and profits

Production and Costs

• Distinguish between the short run and long run in the context of production - see pages 1-2 of the document '1.5. Costs, revenues & profits'

• Complete Tasks 1 to 4 of the document '1.5. Costs, revenues & profits'
• Production in the short run: the law of diminishing returns - see page 5 of the document '1.5. Costs, revenues & profits'

Costs of production: economic costs

• Explain the meaning of economic costs as the opportunity cost of all resources employed by the firm (including entrepreneurship) - see pages 6-7 of the document '1.5. Costs, revenues & profits'
• Distinguish between explicit costs and implicit costs as the two components of economic costs - complete Tasks 6 & 7 of '1.5. Costs, revenues & profits'

Costs of production in the short run

• Explain the distinction between the short run and the long run, with reference to fixed factors and variable factors - see pages 9 to 23 of the document '1.5. Costs, revenues & profits'

Production in the long run: returns to scale

• Distinguish between increasing returns to scale, decreasing returns to scale and constant returns to scale - see pages 20-23 of the document '1.5. Costs, revenues & profits'

Costs of production in the long run

• Outline the relationship between short-run average costs and long-run average costs - see page 20 of the document '1.5. Costs, revenues & profits'
• Explain, using a diagram, the reason for the shape of the long-run average total cost curve - see page 20 of the document '1.5. Costs, revenues & profits'

• Complete Tasks 11 to 14 on page 24 of the document '1.5. Costs, revenues & profits'

Revenues -see pages 25-27 of the document '1.5. Costs, revenues & profits'

• Total revenue, average revenue and marginal revenue
• Distinguish between total revenue, average revenue and marginal revenue - see page 25 of the document '1.5. Costs, revenues & profits'
• Draw diagrams illustrating the relationship between total revenue, average revenue and marginal revenue - see pages 26-27 of the document '1.5. Costs, revenues & profits'
• Calculate total revenue,average revenue and marginal revenue from a set of data and/or diagrams - Complete Task 15 of the document '1.5. Costs, revenues & profits'

Profit - see pages 28-30 of the document '1.5. Costs, revenues & profits'

• Economic profit(sometimes known as abnormal profit) and normal profit (zero economic profit occurring at the breakeven point) - see page 28 of the document '1.5. Costs, revenues & profits'

• Describe economic profit(abnormal profit) as the case where total revenue exceeds economic cost - see page 28 of the document '1.5. Costs, revenues & profits'
• Describe normal profit (zero economic profit) as the case where total revenue is equal to total economic costs or the situation in which the amount of revenue earned is just sufficient to keep the firm in its current line of business - see page 28 of the document '1.5. Costs, revenues & profits'
• Explain that economic profit(abnormal profit) is profit over and above normal profit (zero economic profit), and that the firm earns normal profit when economic profit (abnormal profit) is zero - see page 28 of the document '1.5. Costs, revenues & profits'
• Explain why a firm will continue to operate even when it earns zero economic profit (abnormal profit) - see page 28 of the document '1.5. Costs, revenues & profits'
• Explain the meaning of loss as negative economic profit arising when total revenue is less than total cost -see page 28 of the document '1.5. Costs, revenues & profits'
• Calculate different profit levels from a set of data and/or diagrams - complete Tasks 16-19 of the document '1.5. Costs, revenues & profits'

Goals of firms - see pages 31-33 of the document '1.5. Costs, revenues & profits'

Profit maximisation

• Explain the goal of profit maximisation where the difference between total revenue and total cost is maximised or where marginal revenue equals marginal cost - see pages 31-32 of the document '1.5. Costs, revenues & profits'

Alternative goals of firms

• Describe alternative goals of firms, including revenue maximisation, growth maximisation, satisficing and corporate social responsibility - see pages 32-33 of the document '1.5. Costs, revenues & profits'

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