1.4 Production, costs and revenue Flashcards
Production
total output of goods and services produced
productivity
rate of production for one factor of production
labour productivity
output per worker per unit time
specialisation
produce limited range of goods or services
division of labour
specialisation at the level of an individual worker
exchange
one thing is traded for something else
short run
at least one factor of production is fixed
long run
all factors of production are variable
law of diminishing returns
as factors of production are added, marginal output will rise then fall
returns to scale
relationship between increasing inputs to the proportionate change in outputs
fixed costs
do not vary with output in short run
variable costs
vary with output
total costs
fixed costs+variable costs
average costs
total cost / output
marginal costs
addition to total costs from making one extra unit of output
economies of scale
reduced average cost by increasing output in the long run
internal economies of scale
reduction in costs from growth of firm
external economies of scale
reductions in costs from a growth in industry
diseconomies of scale
increased average costs from increasing output
minimum efficient scale
lowest level of output at which average costs are minimised
total revenue
price x quantity sold
average revenue
revenue / units of output
marginal revenue
addition to total revenue from one extra output
profit
total revenue - total costs
normal profit
minimum level of profit to reward risk taking
super-normal profit
profit above normal profit
invention
creation of product / process
innovation
new product turned into good or service
creative destruction
technological change leads to new products, which get rid of old products
