3 production, costs and revenue

Question 1

production definition

Answer 1

converts inputs or factor services into outputs of goods and services

Question 2

short-run production definition

Answer 2

occurs when a firm adds variable factors of production to fixed factors of poduction

Question 3

long-run production definition

Answer 3

occurs when a firm changes the scale of all the factors of production

Question 4

productivity definition

Answer 4

output per unit of input

Question 5

labour productivity definition

Answer 5

output per worker

Question 6

capital productivity definition

Answer 6

output per unit of capital

Question 7

productivity gap definition

Answer 7

the difference between labour productivity in the UK and in other developed economies

Question 8

specialisation definition

Answer 8

a worker only performing one task or a narrow range of tasks. Also, different firms specialising in producing different goods and services

Question 9

division of labour definition

Answer 9

goes hand in hand with specialisation, different workers perform different tasks in the course of producing a good or service

Question 10

who founded the idea of specialsation

Answer 10

adam smith

Question 11

what are the 3 benefits of specialisation

Answer 11

• workers won’t need to switch between tasks so time saved
• more and better machinery can be employed (capital widening and capital deepening)
• workers become more efficient over time (practice makes perfect)

Question 12

capital widening definition

Answer 12

employing more of the same capital

Question 13

capital deepening definition

Answer 13

investing in new and better capital/technology

Question 14

what are 2 disadvantages of specialisation

Answer 14

• workers become deskilled in all other aspects
• workers can get/become bored much easier

Question 15

trade definition

Answer 15

the buying and selling of goods and services

Question 16

exchange definition

Answer 16

to give something in return for something else received.

money is a medium of exchange

Question 17

short run definition

Answer 17

the time period in which at least one factor of production is fixed and cannot be varied

Question 18

long run definition

Answer 18

the time period in which no factors of production are fixed and in which all the factors of production can be varied

Question 19

long-run average cost definition

Answer 19

long-run total costs divided by output

Question 20

economies of scale definition

Answer 20

as output increases, long-run average cost falls

Question 21

diseconomies of scale definition

Answer 21

as output increases long-run average cost rises

Question 22

technical economies of scale definition

Answer 22

a cost saving generated through changes to the ‘productive process’ as the scale of production and the level of output increases

Question 23

internal economies of scale definition

Answer 23

cost saving resulting from the growth of the firm itself

Question 24

external economies of scale definition

Answer 24

cost saving resulting from the growth of the industry or market of which the firm is part of

Question 25

managerial economies of scale definition

Answer 25

the larger the scale of firm the greater is its ability to benefit from specialisation and the division of labour within management as well as within the ordinary labour force

Question 26

marketing economies of scale definition

Answer 26

Scale will allow firms to enjoy pricing advantages by purchasing stock in large quantities or by negotiating exclusive deals with large wholesalers and retailers

Question 27

what are the 2 types of marketing economies of scale

Answer 27

• bulk-buying
• bulk-marketing

Question 28

financial or capital-raising economies of scale definition

Answer 28

As firms grow in size they will gain access to more sources of finance and improved terms.

Question 29

risk bearing economies of scale definition

Answer 29

large firms often less exposed to risk because risk can be grouped and spread

Question 30

economies of scope definition

Answer 30

factors that make it cheaper to produce a range of products together than to produce each one of them on its own

Question 31

what are the 6 reasons for economies of scale

Answer 31

• technical
• managerial
• marketing
• financial
• risk-bearing
• economies of scope

Question 32

what are the 3 reasons for diseconomies of scale

Answer 32

• managerial
• communication failure
• motivational

Question 33

managerial diseconomies of scale definition

Answer 33

as firms grow in size, administration of the firm becomes more difficult, so they delegate to less experienced workers causing bad decisions and potentially higher costs

Question 34

communication failure diseconomies of scale definition

Answer 34

large firm too many layers, slow communication

Question 35

motivational dis economies of scale definition

Answer 35

larger firm employees feel like a number, slower production