1.4 Production, costs and revenue

Question 1

Production

Answer 1

total output of goods and services produced

Question 2

productivity

Answer 2

rate of production for one factor of production

Question 3

labour productivity

Answer 3

output per worker per unit time

Question 4

specialisation

Answer 4

produce limited range of goods or services

Question 5

division of labour

Answer 5

specialisation at the level of an individual worker

Question 6

exchange

Answer 6

one thing is traded for something else

Question 7

short run

Answer 7

at least one factor of production is fixed

Question 8

long run

Answer 8

all factors of production are variable

Question 9

law of diminishing returns

Answer 9

as factors of production are added, marginal output will rise then fall

Question 10

returns to scale

Answer 10

relationship between increasing inputs to the proportionate change in outputs

Question 11

fixed costs

Answer 11

do not vary with output in short run

Question 12

variable costs

Answer 12

vary with output

Question 13

total costs

Answer 13

fixed costs+variable costs

Question 14

average costs

Answer 14

total cost / output

Question 15

marginal costs

Answer 15

addition to total costs from making one extra unit of output

Question 16

economies of scale

Answer 16

reduced average cost by increasing output in the long run

Question 17

internal economies of scale

Answer 17

reduction in costs from growth of firm

Question 18

external economies of scale

Answer 18

reductions in costs from a growth in industry

Question 19

diseconomies of scale

Answer 19

increased average costs from increasing output

Question 20

minimum efficient scale

Answer 20

lowest level of output at which average costs are minimised

Question 21

total revenue

Answer 21

price x quantity sold

Question 22

average revenue

Answer 22

revenue / units of output

Question 23

marginal revenue

Answer 23

addition to total revenue from one extra output

Question 24

profit

Answer 24

total revenue - total costs

Question 25

normal profit

Answer 25

minimum level of profit to reward risk taking

Question 26

super-normal profit

Answer 26

profit above normal profit

Question 27

invention

Answer 27

creation of product / process

Question 28

innovation

Answer 28

new product turned into good or service

Question 29

creative destruction

Answer 29

technological change leads to new products, which get rid of old products