1.3 Production, Cost and Revenue

Question 1

1. Production and Productivity

Answer 1

1. Production
2. Productivity
3. Labour Productivity
4. Capital Productivity

Question 2

2. Specialisation and Trade

Answer 2

1. Specialisation

2. Division of Labour

Question 3

3. Cost of Production

Answer 3

1. Short Run
2. Long Run
3. Fixed Cost
4. Variable Cost
5. Average Fixed Cost Curve
6. Average Variable Cost Curve
7. Average Total Cos Curve
8. Long-Run Average Cost Curves

Question 4

4. Economies / Diseconomies of Scale

Answer 4

1. Internal Economies
2. Internal Diseconomies
3. External Economies
4. External Diseconomies

Question 5

5. Average Revenue, Total Revenue and Profit

Answer 5

1. Total Revenue
2. Average Revenue
3. Profit

Question 6

1.1 Production

Answer 6

• Converting Inputs into outputs of goods and services

Question 7

1.2 Productivity

Answer 7

• Output per unit of input

Question 8

1.3 Labour Productivity

Answer 8

• Output pet worker

Question 9

1.4 Capital Productivity

Answer 9

• Output per unit of capital

Question 10

2.1 Specialisation

Answer 10

• A worker only performing one task or a narrow range of tasks.

Question 11

2.2 Division of Labour

Answer 11

• Different workers perform different tasks to increase output.

Question 12

3.1 Short Run

Answer 12

• Time period in which at least one FOP is fixed

Question 13

3.2 Long Run

Answer 13

• Time period in which all FOP can be changed

Question 14

3.3 Fixed Cost

Answer 14

• Cost of production that in SR, does not change with output

Question 15

3.4 Variable Cost

Answer 15

• Cost of Production that changes with amount that is produced

Question 16

3.5 Average Fixed Cost Curve

Answer 16

• AFC fall as output increases since overheads are spread over a larger output.
• AFC curves always slope downwards.

Question 17

3.6 Average Variable Cost Curve

Answer 17

• Assuming Labour is only variable FOP, they are simply wage costs.
• Labour becomes more productive and more is employed
• Eventually becomes less productive (LoDR)
• U-Shaped AVC curve

Question 18

3.7 Average Total Cost Curve

Answer 18

ATC = Total Cost / Output

Question 19

3.8 Long-Run Average Cost Curve

Answer 19

• In the LR, a firm can change the scale of all it’s FOP.
• U Shaped LRAC Curve
• Shows a firm’s average costs first fall and then rise

Question 20

4.1 Internal Economies

Answer 20

1. Technical
   - Production line methods to increase output at low cost
2. Purchasing
   - Larger firms will need larger quantities
3. Managerial
   - Employ specialist managers
4. Financial
   - Often borrow money at a lower rate of interest
5. Risk-bearing
   - Diversify into different product areas
   - Demand falls for product, another may increase
6. Marketing
   - Advertising is usually a fixed cost (spread over more units)

Question 21

4.2 Internal Diseconomies

Answer 21

1. Managerial
   - As a firm grows, administration becomes more difficult
   - Personnell who lack experience make bad decisions
2. Motivational
   - Difficult to satisfy and motivate workers
   - Over specialisation can lead to boredom
3. Communication Failure
   - Too many layers of management, staff can feel remote
   - This causes staff productivity to fall

Question 22

4.3 External Economies

Answer 22

1. Local Colleges:
   - Start to offer qualifications needed by local employers
2. Road Network
   - Large companies locating in an area
3. Silicon Valley
   - Local firms doing similar things means they can share resources

Question 23

4.4 External Diseconomies

Answer 23

1. Price of Raw Materials Increase if…
   - Whole industry becomes bigger
   - Buying large amounts may not be less expensive

Question 24

5.1 Total Revenue

Answer 24

• All money received by a firm selling total output

Question 25

5.2 Average Revenue

Answer 25

• Total Revenue / Output

Question 26

5.3 Profit

Answer 26

• Total Profit = Total Revenue - Total Costs