Objectives of Firms / Cost and Revenue

H2 Economics - syllabus 9570, 2026

Original teaching notes

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Calculate costs, revenue and profit; choose output and compare firms' objectives and scale decisions.

• Revenue, economic cost and profit

  Profit deducts opportunity costs, including implicit costs.

• Short run and long run

  The short run has at least one fixed input.

• Fixed, variable and total cost

  Fixed cost does not change with output in the stated period.

• Average and marginal cost

  Average cost measures each unit on average; marginal cost measures the extra unit.

• Total, average and marginal revenue

  Selling more units does not always increase total revenue.

• Explain a change in cost

  Identify which input cost or production condition changes.

• Choose the profit-maximising output

  Choose the feasible output with the greatest total profit.

• Compare firms' objectives

  Different objectives can lead to different output choices.

• Make a decision with imperfect information

  Expected profits depend on uncertain demand and cost information.

• Internal economies and diseconomies of scale

  A firm's own expansion can lower or raise its long-run average cost.

• External economies and diseconomies of scale

  Industry growth can change a firm's costs even at unchanged scale.

• Evaluate a proposed expansion

  Compare expected benefits and costs against a feasible alternative.