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Economics IGCSEPDF 74
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Total Fixed Cost is a horizontal line
because it remains constant as
output changes.
Average Fixed Cost continuously
slopes downward because the fixed
cost is spread over a larger number
of units.
The Average Total Cost (ATC)
curve is typically U-shaped: it falls
initially due to rising efficiency and
falling AFC, but eventually rises due
to the Law of Diminishing Returns.
3.7.3 Definition of Revenue
Total Revenue (TR): The total income
generated by a firm from selling its output.
TR = Price * Quantity sold Average
Revenue (AR): The revenue
generated per unit of output sold, which is
equal to the price charged for the product.
AR = Total Revenue/Quantity Sold
Note: Marginal revenue is not required for
this section.
3.7.4 Calculation of Revenue and
Influence of Sales
TR Calculation: The basic
calculation is simply the price the
firm sells its product for multiplied by
the number of units sold.
AR Calculation: Total Revenue
divided by the quantity sold.
Influence of Sales on Revenue:
○ If demand is inelastic, a firm
can raise its price, and the
reduction in quantity sold will
be small, causing Total
Revenue to increase.
○ If demand is elastic, a firm
must lower its price to
increase sales, but the
quantity demanded will rise
by a larger percentage,
causing Total Revenue to
increase.
○ For a firm in a highly
competitive market, sales
volume is the only way to
significantly
increase
revenue since the firm
cannot control price.
3.7.5 Objectives of Firms
Profit Maximisation: The traditional
and most common goal. Firms aim
to produce the level of output where
the difference between Total
Revenue and Total Cost ({TR} -
{TC}) is greatest. This is the financial
reward for enterprise.
Survival: A priority for new or
struggling firms. The objective is to
cover costs and remain operational
in the short term, often until market
conditions improve.
Growth: Firms aim to increase their
size, measured by revenue, market
share, or number of employees.
Growth often leads to lower long-run
average costs through economies
of scale.
Social Welfare/Corporate Social
Responsibility (CSR): Objectives
that consider the impact on society
and the environment, such as
reducing pollution or supporting the
local community. These goals are
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