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Economics

IB Economics (HL)

Microeconomics

economics HL

Economics IB

Market power

rational producer behaviour

producer and conusmer

12th

Ch 10 - Rational Producer Behaviour

Rational producer behaviour: in an economy, firms are assumed to be having in a rational way, by always trying to maximise the profits they make.

Classification of costs:
- Economic cost: this is the total sacrifices made in order to bring a good or service into existence. These costs can be categorised into:
- Implicit costs: this is forgone alternative which a firm would have undertaken if it had taken note of it
- Explicitly costs: monetary costs that a firm pay to outside suppliers of inputs

Total costs:
- Total fixed cost (TFC): costs that a firm incurs that do not change with output in a given time period
- Total variable cost (TVC): costs that a firm faces which vary with change in output within a given time period
- Total cost (TC): cost of all fixed and variable factors to produce an output TC = TVC + TFC

Average costs: costs a firm incurs to produce every unit of output
- Average fixed cost (AFC): fixed cost per unit output AFC = TFC/q
- Average variable cost (AVC): variable cost per unit output AVC = TVC/q
- Average cost (AC): unit per cost per unit output, sum of average fixed cost and average variable cost ATC = TC/q
Marginal Cost: additional cost incurred for producing one more unit of an output
- MC = △TC / △q

Revenue: income a firm received for selling its output. Revenues can be average, total, or marginal revenue
1. Total revenue (TR): total amount of money that a firm receives from selling its produced output in a given period of time
2. Average revenue (AR): revenue a firm receives for selling every unit of its output
3. Marginal revenue (MR): extra income earned by a firm for selling its good or service in a specified period of time

Measuring profit:
- → Total profit = total revenue - economic cost
Forms of profit:
1. Normal profit: when total revenue is equal to total cost
2. Abnormal profit: when total revenue is more than total cost
3. Negative profit (losses): when total revenue is less than total cost
Objectives of the firm in this economy:
1. Market share growth when a firm aims to increase the number of customers buying its product
2. Revenue maximising: when the firm aims to increase its revenue through sales

Ch 10 - Rational Producer Behaviour

Rational producer behaviour: in an economy, firms are assumed to be having in a rational way, by always trying to maximise the profits they make.

Classification of costs:
- Economic cost: this is the total sacrifices made in order to bring a good or service into existence. These costs can be categorised into:
- Implicit costs: this is forgone alternative which a firm would have undertaken if it had taken note of it
- Explicitly costs: monetary costs that a firm pay to outside suppliers of inputs

Total costs:
- Total fixed cost (TFC): costs that a firm incurs that do not change with output in a given time period
- Total variable cost (TVC): costs that a firm faces which vary with change in output within a given time period
- Total cost (TC): cost of all fixed and variable factors to produce an output TC = TVC + TFC

Average costs: costs a firm incurs to produce every unit of output
- Average fixed cost (AFC): fixed cost per unit output AFC = TFC/q
- Average variable cost (AVC): variable cost per unit output AVC = TVC/q
- Average cost (AC): unit per cost per unit output, sum of average fixed cost and average variable cost ATC = TC/q
Marginal Cost: additional cost incurred for producing one more unit of an output
- MC = △TC / △q

Revenue: income a firm received for selling its output. Revenues can be average, total, or marginal revenue
1. Total revenue (TR): total amount of money that a firm receives from selling its produced output in a given period of time
2. Average revenue (AR): revenue a firm receives for selling every unit of its output
3. Marginal revenue (MR): extra income earned by a firm for selling its good or service in a specified period of time

Measuring profit:
- → Total profit = total revenue - economic cost
Forms of profit:
1. Normal profit: when total revenue is equal to total cost
2. Abnormal profit: when total revenue is more than total cost
3. Negative profit (losses): when total revenue is less than total cost
Objectives of the firm in this economy:
1. Market share growth when a firm aims to increase the number of customers buying its product
2. Revenue maximising: when the firm aims to increase its revenue through sales