2.6 Production

Question 1

Define production

Answer 1

The total output of goods and services produced by a firm or an industry in a period of time

Question 2

What is the role of producers?

Answer 2

• The supply part of supply and demand
• Aim to make a profit
• Employ workers and pay wages

Question 3

Evaluate the importance of loss

Answer 3

• A continuous loss will result in a firm closing down.
• In the short-term, a loss can be covered by using money previously saved or by loans
• Acts as a signal to resources to move away from the firm

Question 4

Define economies of scale

Answer 4

The cost advantages a firm can gain by increasing the scale of production

Question 5

Advantages of an increase in productivity

Answer 5

• Increased profits leading to better training and more investment (now able to attract the best workers and can pay for research/development of products)
• Increased total output of the economy (increasing employment and wages as well as tax revenue)
• More exports, greater economic growth

Question 6

Disadvantages of an increase in productivity

Answer 6

• Unemployment due to workers being replaced by machines (leading to a rise in government expenditure of welfare benefits)
• Slower economic growth (due to greater international competitiveness leading to retaliation by countries against rising exports)

Question 7

Advantages of an increase in production

Answer 7

• Increase in employment
• Rise in standard of living for consumers (as more to buy)
• Increase in profits

Question 8

Define total cost

Answer 8

All the costs of the firm added together

Question 9

Disadvantages of an increase in production

Answer 9

• Increase in production may be caused by new technology/ workers being replaced by machinery, leading to a lower standard of living
• Potential environmental problems
• Average costs may rise, leading to diseconomies of scale

Question 10

How to calculate total cost

Answer 10

total cost = total fixed cost + total variable cost

Question 11

Define productivity

Answer 11

The output per unit of input

Question 12

Define average cost

Answer 12

The cost of producing a unit of output

Question 13

Evaluate the importance of profits

Answer 13

• Acts as a signal to resources to move to the firm
• Provides money for investment
• Offers a measure of the success of investments and encourages more in the futureE

Question 14

How to calculate average revenue

Answer 14

average revenue = total revenue / quantity

Question 15

How to calculate average cost

Answer 15

average cost = total cost / quantity

Question 16

Define total revenue

Answer 16

The total income of the firm from the sale of its goods and services

Question 17

How to calculate total revenue

Answer 17

total revenue = price of product * quantity sold

Question 18

Define loss

Answer 18

When a firm’s revenue is less than its costs

Question 19

Evaluate the importance of costs

Answer 19

• Firms control costs to try to make a greater profit
• If costs decrease, firms can supply more at every price

Question 20

Evaluate the importance of revenue

Answer 20

• Without enough revenue, a firm will make a loss and go out of business
• Increased revenue leads to greater profit which would lead to investment/development of a firm. It also creates confidence in the firm, workers remain and suppliers supply more.
• A steady rate of revenue allows firms to gain loans and favourable interests on overdrafts

Question 21

Define average revenue

Answer 21

The revenue per unit sold

Question 22

Define profit

Answer 22

When a firm’s revenue is greater than its costs

Question 23

How to calculate profit/loss

Answer 23

profit/loss = total revenue - total cost