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Utility is a measure of the value which consumers of a product or service place on that product or service; Demand is a reflection of this measure of value, and is represented by price per quantity of output;
PRICE
QUANTITY ( OUTPUT )
PRICE a
Price equals some constant value minus some multiple of the quantity demanded: p=a-bD
QUANTITY ( OUTPUT )
PRICE a
Price equals some constant value minus some multiple of the quantity demanded: p=a-bD a = Y-axis (quantity) intercept, (price at 0 amount demanded); b = slope of the demand function;
QUANTITY ( OUTPUT )
PRICE a
Price equals some constant value minus some multiple of the quantity demanded: p=a-bD a = Y-axis (quantity) intercept, (price at 0 amount demanded); b = slope of the demand function; D = (a p) / b QUANTITY ( OUTPUT )
PRICE a
Price equals some constant value minus some multiple of the quantity demanded: p=a-bD a = Y-axis (quantity) intercept, (price at 0 amount demanded); b = slope of the demand function; D = (a p) / b
REVENUE
QUANTITY ( OUTPUT )
PRICE a
Price equals some constant value minus some multiple of the quantity demanded: p=a-bD a = Y-axis (quantity) intercept, (price at 0 amount demanded); b = slope of the demand function; D = (a p) / b
PRICE
PRICE a
Price equals some constant value minus some multiple of the quantity demanded: p=a-bD a = Y-axis (quantity) intercept, (price at 0 amount demanded); b = slope of the demand function; D = (a p) / b QUANTITY ( OUTPUT ) MR = dTR / dD = a 2bD = 0 Total Revenue = p x D = (a bD) x D =aD bD2 QUANTITY ( OUTPUT )
PRICE
PRICE a
Price equals some constant value minus some multiple of the quantity demanded: p=a-bD a = Y-axis (quantity) intercept, (price at 0 amount demanded); b = slope of the demand function; D = (a p) / b QUANTITY ( OUTPUT ) MR = dTR / dD = a 2bD = 0 Total Revenue = p x D = (a bD) x D =aD bD2 QUANTITY ( OUTPUT )
PRICE
MR=0
PRICE a
Price equals some constant value minus some multiple of the quantity demanded: p=a-bD a = Y-axis (quantity) intercept, (price at 0 amount demanded); b = slope of the demand function; D = (a p) / b QUANTITY ( OUTPUT ) MR = dTR / dD = a 2bD = 0 Total Revenue = p x D = (a bD) x D =aD bD2 QUANTITY ( OUTPUT )
PRICE
MR=0
TR = Max
PRICE a
Price equals some constant value minus some multiple E > 1 of the quantity demanded: p=a-bD E = 1 a = Y-axis (quantity) intercept, (price at 0 amount demanded); b = slope of the demand function; E<1 D = (a p) / b
PRICE
MR=0
QUANTITY ( OUTPUT ) MR = dTR / dD = a 2bD = 0 Total Revenue = p x D = (a bD) x D =aD bD2 QUANTITY ( OUTPUT )
TR = Max
Cost / Revenue
Maximum Profit
PROFIT MAXIMIZATION D*
Occurs where total revenue exceeds total cost by the greatest amount; Occurs where marginal cost = marginal revenue; Occurs where dTR/dD = d Ct /dD; D* = [ a - Cv ] / 2B
D =
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Variable Costs
Costs that vary with the level of activity;
Direct Labor wages; Materials; Indirect costs; Marketing; Advertising; Warranty; Etc.
Fixed Costs
Essentially constant for all values of the variable in question; If no level of activity, fixed costs continue; Must shut down the activity before fixed costs can be altered downward; To buffer fixed costs one must work on improved efficiencies of operations.
Variable Costs
Variable Costs change with the level of activity; More activity greater variable costs; Less activity lover variable costs; Variable costs are impacted by efficiency of operation, improved designs, quality, safety, and higher sales volume.
Total Costs
Total Cost = Fixed Costs + Variable Costs; TC = FC + VC; Profit Relationships; Profit = Revenue Total Cost P = R TC P = R {FC + VC}.
Figure 1616-1
Linear and nonlinear revenue and cost relations used in breakeven breakeve n analysis.
Total Costs
Variable Costs
Breakeven
The breakeven point, QBE is the point where the revenue and total cost relationships intersect: For nonnon-linear forms, it is possible to have more than one QBE point.
Breakeven
Revenue and Total cost relationships tend to be static in nature; May not truly reflect reality of the dynamic firm; However, the breakeven point(s) can be useful for planning purposes.
Figure 1616-2
Effect on the breakeven point when the variable cost per unit is reduced.