3.1.3 - Production, Costs And Revenue Flashcards
Define production
Processes that converts inputs (or services of FOP) into outputs of goods
Define productivity
Output per unit of input
2 ways of measuring productivity?
- Labour productivity
Output per worker - Capital productivity
Outlet per unit of capital
Define productivity gap
Difference between Labour productivity in UK and other developed countries
Define specialisation
Involves workers only performing a narrow range of tasks
Division of Labour
Whereby a production process can be broken down into separate tasks
Advantages and disadvantages of specialisation?
Advantages:
- higher output
- higher quality
- more opportunities for economies of scale
Disadvantages:
- work becomes repetitive
- potentially more structural unemployment
- over reliant on specialism
Define absolute advantage
Occurs when a country can produce more of a good with the same factor of inputs
Advantages of this:
- lower average costs
- outward PPF curve shift
Disadvantages:
- lesser developed countries might use up their non-renewables
- countries could become over dependant on this export
What are costs of production like in the short run, and their definitions (4)?
Capital is typically fixed, and becomes more variable in the long run
Fixed costs:
in the short run don’t change with output i.e rent
Variable costs:
In the short run do change with changes in output
Total costs:
While costs of producing a particular output
Average costs:
Cost per unit
What is the formula for Average Fixed Costs?
Total fixed costs
————————
Output
What is the formula for average variable costs?
Total variable costs
——————————
Output
Formula for average total costs?
Av. fixed costs + Av. variable costs
What are the costs of production like in the long run?
None of the factors of production are fixed — they can all be varied
Formula for long-run average costs?
Long run total costs
——————————
Output
What is economies of scale? + list some internal & external EOS
It occurs when output increases as average costs fall (can be internal or external)
Internal economies of scale:
1. Managerial economies
2. Technical economies
3. Marketing economies
4. Risk-bearing economies
5. Economies of scope
6. Financial economies
External economies of scale:
Cost savings resulting from growth of the industry / market. They occur as a result of:
- Clusters / networks
- Training / education
- Transport + communication links improve
What is diseconomies of scale? + what are internal examples of this?
Occurs as output increases and long-run average costs rise (can be internal or external)
Internal:
1. Managerial diseconomies of scale
2. Motivational diseconomies of scale
3. Communication failure
What is the formula for total revenue?
Price * quantity sold
Formula for average revenue?
Total revenue
———————
Quantity sold
Formula for profit?
Total revenue — total costs
Why is the average revenue curve the same as a firms demand curve
AR =
Total revenue
———————
Quantity
Therefore
AR=
Quantity x Price
—————————
Quantity
Therefore
AR = Price
Therefore
AR shows relationship between price and quantity (is the same as the demand curve)
What does it mean for a country to have a comparative advantage (in goods)
It means they can produce a good at a lower opportunity cost to another
What are some advantages of the comparative advantage?
- greater world output, so there is a gain in economic welfare
- lower average costs (increased competition)
- increased supply of goods to choose from
- outward shift in PPF
What are some disadvantages of the comparative advantage?
- less developed countries might use up here non-renewables too quickly
- countries could become over dependant on the export of one commodity I.e. wheat
Name the 4 functions of money:
-
Medium of exchange;
To replace bartering etc -
A measure of value;
Measures relative values of different goods and services -
Store of value;
Can be kept for a long time without expiring but must be proportional with inflation to retain value -
Method of deferred payment;
Money can be allowed for debts to be created: people can therefore pay for things later
