Revision Webinar - Business Profits
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The document discusses how a firm can maximize its profits by producing at the output level where marginal revenue equals marginal cost. It explains that a firm is making normal profits when average revenue equals average cost. The document also outlines how economies of scale can lower average costs and allow a firm to increase profits by reducing prices and selling at a higher output level.
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Revision Webinar - Business Profits
- 3. MC1: When does a firm maximise profits? Type your answer in the chat window! Option A When average revenue = average cost B When marginal revenue is zero C When marginal profit is zero D When average cost is minimised
- 4. MC1: When does a firm maximise profits? Type your answer in the chat window! Option A When average revenue = average cost B When marginal revenue is zero C When marginal profit is zero D When average cost is minimised
- 5. MC1: When does a firm maximise profits? Type your answer in the chat window! Option A When average revenue = average cost B When marginal revenue is zero C When marginal profit is zero D When average cost is minimised Normal profit Max revenue Productive Efficiency
- 6. Marginal profit is the increase in profit when one more unit is sold MCPrice, Cost Output MR Marginal profit is positive Positive Marginal Profit
- 7. MCPrice, Cost Output MR Marginal profit is positive Marginal profit is negative Marginal profit is the increase in profit when one more unit is sold Negative Marginal Profit
- 8. MCPrice, Cost Output MR Marginal profit is positive Marginal profit is negative Profit maximised here Marginal profit is the increase in profit when one more unit is sold Marginal Profit =0 at Profit Max Output Q1
- 9. MC2: What effect will a fall in a firm’s fixed costs have on their profit maximising price and profit? Type your answer in the chat window! Profit maximising price Total profit A Fall Fall B Fall Rise C No change Rise D Rise Rise
- 10. MC2: What effect will a fall in a firm’s fixed costs have on their profit maximising price and profit? Type your answer in the chat window! Profit maximising price Total profit A Fall Fall B Fall Rise C No change Rise D Rise Rise
- 11. Profits: A Fall in Total Fixed Costs MC Price and Cost Output AC1 MR1 AR1 Profit Max: MC=MR P1 Q1 C1
- 12. Profits: A Fall in Total Fixed Costs MC Price and Cost Output AC1 MR1 AR1 Profit Max: MC=MR Q1 C1 Original level of supernormal profit at price P1 P1
- 13. Profits: A Fall in Total Fixed Costs MC Price and Cost Output AC1 MR1 AR1 Profit Max: MC=MR Q1 C1 AC2 P1
- 14. Profits: A Fall in Total Fixed Costs MC Price and Cost Output AC1 MR1 AR1 Profit Max: MC=MR Q1 C1 AC2 C2 P1
- 15. Profits: A Fall in Total Fixed Costs MC Price and Cost Output AC1 MR1 AR1 Profit Max: MC=MR Q1 AC2 C2 P1
- 16. MC3: Which one of the following is most likely to increase the total profits of a business in a contestable market? Type your answer in the chat window! A The entry of new firms in the long run B The introduction of a price cap by an industry regulator C A decision by rival firms to increase their output capacity & lower prices D A strategy of price discrimination
- 17. MC3: Which one of the following is most likely to increase the total profits of a business in a contestable market? Type your answer in the chat window! A The entry of new firms in the long run B The introduction of a price cap by an industry regulator C A decision by rival firms to increase their output capacity & lower prices D A strategy of price discrimination
- 18. Market haggling Mobile phone contracts / tariffs Taxi fares at peak times of the day Cinema ticket prices Hairdresser discounts Educational bursaries Price Discrimination in Action
- 19. MC4: If a business is making normal profit, it must be true that Type your answer in the chat window! A Average cost = average revenue B Average cost = marginal revenue C Marginal cost = average cost D Marginal cost = marginal revenue
- 20. MC4: If a business is making normal profit, it must be true that Type your answer in the chat window! A Average cost = average revenue B Average cost = marginal revenue C Marginal cost = average cost D Marginal cost = marginal revenue
- 21. MC5: The table below shows cost and revenue information for a business. Within which of the following output ranges will profits be maximised? When ready, please type your answer in the chat window! Output (tonnes) Total revenue Marginal cost 2 100 10 3 120 15 4 140 20 5 160 25 6 180 30 7 200 40 A 2-3 tonnes B 3-4 tonnes C 4-5 tonnes D 5-6 tonnes E 6-7 tonnes
- 22. MC5: The table below shows cost and revenue information for a business. Within which of the following output ranges will profits be maximised? When ready, please type your answer in the chat window! Output (tonnes) Total revenue Marginal cost 2 100 10 3 120 15 4 140 20 5 160 25 6 180 30 7 200 40 A 2-3 tonnes B 3-4 tonnes C 4-5 tonnes D 5-6 tonnes E 6-7 tonnes
- 23. MC5: The table below shows cost and revenue information for a business. Within which of the following output ranges will profits be maximised? When ready, please type your answer in the chat window! Output (tonnes) Total revenue Marginal cost 2 100 10 3 120 15 4 140 20 5 160 25 6 180 30 7 200 40 A 2-3 tonnes B 3-4 tonnes C 4-5 tonnes D 5-6 tonnes E 6-7 tonnes MR 20 20 20 20 20
- 24. MC5: The table below shows cost and revenue information for a business. Within which of the following output ranges will profits be maximised? MC= MR between the 3rd & 4th tonne Output (tonnes) Total revenue Marginal cost 2 100 10 3 120 15 4 140 20 5 160 25 6 180 30 7 200 40 A 2-3 tonnes B 3-4 tonnes C 4-5 tonnes D 5-6 tonnes E 6-7 tonnes MR 20 20 20 20 20
- 25. PepsiCo's global operating profit margin Source: PepsiCo 18.2% 16.1% 18.6% 14.4% 14.5% 13.9% 14.6% 14.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 2007 2008 2009 2010 2011 2012 2013 2014 Operatingprofitmargin PepsiCo is a global drinks and snack business whose global brands include Frito-Lay, Gatorade and Aquafina.
- 26. Type into chat one factor that might affect the profits of Pepsi in the short run
- 27. Type into chat one factor that might affect the profits of Pepsi in the long run
- 28. Short and long run factors affecting operating profits
- 29. Short and long run factors affecting operating profits Input prices Sugar taxes Labour productivity Cyclical demand Exchange rates Short term / cyclical factors affecting profits
- 30. Short and long run factors affecting operating profits Input prices Sugar taxes Labour productivity Cyclical demand Exchange rates Short term / cyclical factors affecting profits Longer term factors affecting profits Economies of Scale Behavioural change Successful product diversification Synergies from takeovers / mergers Strength of market competition
- 31. Price and Cost Output MR AR Economies of Scale, Price and Profit P1 C1 Q1 Max Profit at Output Q1 MC1 AC1
- 32. MC1Price and Cost Output AC1 MR AR Economies of Scale, Price and Profit P1 C1 Q1 Max Profit at Output Q1 MC2 AC2
- 33. MC1Price and Cost Output AC1 MR AR Economies of Scale, Price and Profit Max Profit at Output Q1 MC2 AC2P2 C2 Q2
- 34. MC1Price and Cost Output AC1 MR AR Economies of Scale, Price and Profit Max Profit at Output Q2 MC2 AC2P2 C2 Q2
- 35. Q1 MC1Price and Cost Output AC1 MR AR Economies of Scale, Price and Profit Max Profit at Output Q2 MC2 AC2P2 C2 Q2 P1
- 36. Some Key Terms
- 37. Abnormal profit Profit in excess of normal - also known as supernormal or monopoly profit. Marginal profit The increase in profits when one more unit is sold. If MR = £20 and MC = £14 then marginal profit = £6 Normal profit Normal profit is the transfer earnings of the entrepreneur i.e. the minimum reward necessary to keep her in her present industry Profit maximisation Profit maximization occurs when marginal cost = marginal revenue Profit per unit Profit per unit (profit margin) = AR – ATC
- 38. @tutor2ugeoff
Editor's Notes
- According to PepsiCo’s most recent annual report, the company generated net revenue of 63.06 billion U.S. dollars worldwide in 2015. Food sales brought in 53 percent of global revenue, whereas beverage sales captured a share of 47 percent.