1.4 production, costs and revenue

Question 1

automation

Answer 1

automatic control; the process by which machines control other machines

Question 2

average cost

Answer 2

total production cost divided by total output (cost per unit of output)

Question 3

average revenue

Answer 3

total revenue divided by total output

Question 4

capital productivity

Answer 4

output per unit of capital

Question 5

constant returns to scale

Answer 5

when output increases by an equal proportion the increase in inputs

Question 6

decreasing returns to scale

Answer 6

when output increases by a smaller proportion than the increase in inputs

Question 7

diseconomies of scale

Answer 7

when long run average costs rise as output rises

Question 8

division of labour

Answer 8

different workers performing different tasks in a good’s/services’ production, specialising to an extent

Question 9

economies of scope

Answer 9

when it’s cheaper to make a range of products

Question 10

economy of scale

Answer 10

when long-run average costs fall as output rises

Question 11

external economy of scale

Answer 11

firms saving resulting from growth of the industry a firm is part of

Question 12

fixed cost

Answer 12

costs of production that do not vary with output, only in the short run

Question 13

increasing returns to scale

Answer 13

when output increases by a larger proportion than the increase in inputs

Question 14

internal economy of scale

Answer 14

firms saving resulting from growth of the firm itself

Question 15

labour productivity

Answer 15

output per worker

Question 16

law of diminshing returns

Answer 16

by continually adding variable factors atop fixed factors, eventually both average and marginal return to the fixed factor fal

Question 17

long run

Answer 17

time period in which none of the factors of production are fixed, and all can be varied

Question 18

long-run average cost

Answer 18

long run total cost per unit of output

Question 19

long-run production

Answer 19

when a firm changes the scale of all factors of production

Question 20

mechanisation

Answer 20

when a firm transfers from becoming more labour intensive to becoming more capital intensive

Question 21

minimum efficient scale (MES)

Answer 21

the lowest level of output at which average costs are minimised

dependent on the market structure as well as barriers to entry

Question 22

normal profit

Answer 22

total revenue equals total costs; the minimum profit required to keep a firm operating in an industry

Question 23

operating costs

Answer 23

same as variable costs

Question 24

overheads

Answer 24

same as fixed costs

Question 25

production

Answer 25

a set of processes that converts inputs into outputs

Question 26

productive efficiency

Answer 26

minimised average total cost

Question 27

productivity

Answer 27

output per unit

Question 28

profit

Answer 28

total revenue - total costs

Question 29

rate of return

Answer 29

income received from an investment

Question 30

returns to scale

Answer 30

the scale by which a firm’s output changes as the scale of all inputs are altered

Question 31

short run

Answer 31

time period in which at least one of the factors of production are fixed and cannot be varied

Question 32

specialisation

Answer 32

a worker only performing a specific task or a small range of tasks

Question 33

sunk cost

Answer 33

non-recoverable costs of entering a market

Question 34

supernormal (abnormal) profit

Answer 34

any level of profit over and above normal profit

Question 35

technical economy of scale

Answer 35

cost saving through changing the production process

Question 36

total cost

Answer 36

total fixed cost added to the total variable cost