(1) Chapter 3 - Production, costs and Revenue Flashcards
Define PRODUCTION
Converting inputs into outputs of goods and services
Define SHORT-RUN PRODUCTION
When a firm adds variable factors of production to fixed ones
Define LONG-RUN PRODUCTION
When a firm changes the scale of all the factors of production
Define PRODUCTIVITY
Output per unit of input
Define SPECIALISATION
Workers only performing one task/narrow range of tasks.
What is meant by DIVISION OF LABOUR
Different workers performing different tasks combining their expertise to produce a good/service
What happens with the FIXED COST in the SHORT-RUN
Cost of production which does not change with ouput
What happens with the VARIABLE COST
Cost of production which changes with the amount that is produced
Define TOTAL COST
The whole cost (Fixed cost + Variable cost)
Define AVERAGE COST
Total cost of production divided by output
Define ECONOMY OF SCALE
As output increases, long-run average cost falls
Define DISECONOMY OF SCALE
As output increases, long-run average cost rises
What are the types of ECONOMIES OF SCALE + brief explanation
Managerial - (Specialist workers/division of labour)
Marketing - Better marketing team/ brand building
Bulk Buying - Cheaper resources
Risk-bearing - Less exposed to risks
Economies of Scope - Cheaper to produce a range of products
What are reasons for DISECONOMIES OF SCALE
Managerial - Administration becomes harder
Communication failure - Many tiers of workers to communicate with
Motivational problems - Specialisation could lead to repetitive and boring tasks + People might be working for a fixed wage with no bonuses/incentives
Define TOTAL REVENUE
All money received from selling output
