3-Production costs and revenue

Question 1

Define production?

Answer 1

The process that converts input into outputs of goods and services

Question 2

Define labour productivity?

Answer 2

Total output per worker or output per hour worked

There are other types of productivity
Eg capital productivity- output per piece of machinery

Question 3

What increases labour productivity?

Answer 3

• new technology
• increases in wages
• specialisation
• infrastructure- roads, education etc

Firms aim for higher productivity because it lowers average costs

Question 4

Define fixed costs?

Answer 4

Fixed cost
Cost which does not change with output, in short run

Variable cost
Cost which changes proportionately with output
Note: labour is a variable cost
Semi variable costs are considered as variable eg energy bills

TC= fixed+ variable
Average cost= cost per unit

LOOK AT BOOK FOR GRAPHS

Question 5

Define short run average costs?

Define long run average costs?

Answer 5

SRAC- at least one factor of production remains fixed (usually premises, rent, land etc)

LRAC- all factors of production are variable

Question 6

Define division of labour?

Answer 6

Division of labour
- breaking the production process down into a sequence of tasks, with workers assigned to particular tasks(leads to increase in PPF)

Question 7

Benefits of division of labour?

Answer 7

• increased productivity as constantly doing the same task
• increased output
• lowers average costs
• can identify weaknesses in the production process
• does not require skilled labour
• allows for mechanisation
• improved quantity and qualit- workers specialise

Question 8

Disadvantages of division of labour?

Answer 8

Repetitive nature can lead to

• low output as workers unable ti sustain their concentration
• higher absenteeism
• poor quality

Question 9

Define specialisation?

Answer 9

Specialisation
- a worker only performing one task or a narrow range of tasks also different firms/countries specialising in producing different goods and services

This requires MEANS OF EXCHANGE. Money is median of exchange.
Countries need to trade to diversify

Question 10

Define economies of scale?

Answer 10

Economies of scale

- as the scale of production of a firm increases, the long run average cost falls

Question 11

Define internal economies of scale

Answer 11

Cost saving resulting from the growth of the firm itself

Question 12

Types of internal economies of scale?

Answer 12

▪️research and development- have more profit and so can spend on R&D
▪️financial- as it is cheaper for larger organisations to access finance as they provide lower risks to firms
▪️marketing- as they can be spread over more units of output eg advertising expenses
▪️ technical- larger firms can employ better capital equipment
▪️managerial- larger firms are able to employ a good managerial team, efficiency so less costs
▪️purchasing(bulk buying)- larger output,materials can be bought in bulk

Question 13

Define external economies of scale?

Answer 13

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

Question 14

Types of external economies of scale?

Answer 14

• technology
• infrastructure
• education
• research and development

Question 15

Define diseconomies of scale?

Answer 15

Diseconomies of scale

- where an increase in the scale of production leads to increases in average total costs for firms

Question 16

What causes diseconomies of scale?

Answer 16

If you are becoming a larger company you will have problems with
Communication
Coordination
Control
Commitment(motivation)
Cooperation

Question 17

External diseconomies of scale?

Answer 17

External rising costs

Eg pollution