3.3 Production, costs and revenue Flashcards
how can productivity be improved
incensitives, technology and training
what is productivity
output from a given factor of production over a given time
why is specialisation good
If each worker speciliases output and productivity increases
benefits of specialisation
+ Fast process
+ higher output + higherproductivity
+ Higher quality = room for further profit
+makes firms more competitive
negatives about specialisation
- Higher wages as workers are more skilled/specialised
- lack of motivation = less output = less quality in final product
- It can cause structural unemployment e.g. coal miners = no transferrable skills in the future
- Less variety of products
- High turnover in staff (higher cost for firms)
function of money
- a medium of exchange (back in the day, transaction were made through bartering system
a measure value
A store of value
A method of deferred payment e g. mortgage
difference between short run and long run factors of production
Long run costs have no fixed factors of production, while short run costs have fixed factors and variables that impact production.
difference between fixed and variable costs
Fixed costs are expenses that remain the same no matter how much a company produces, such as rent, property tax, insurance, and depreciation. Variable costs are any expenses that change based on how much a company produces and sells, such as labor, utility expenses, commissions, and raw materials.
what is an economy of scale
decrease in LRAC as output increases
internal economies of scale all occur within a business what are examples of some
really fat mums try making pies
TOTAL COST RISES BUT QUANTITY WILL RISE FASTER LEADING TO DECREASE IN AC
Risk baring- As a firm grows larger, it can spread its production range across several departments. And by spreading this risk across the firm, if one part fails, other parts are there to fall back
financial-As a firm grows larger, banks are more willing to lend loans at a lower interest rate in comparison to smaller firms. Why?
because larger firms are more likely to make a profit and pay it back. A large firms can take advantage of cheaper credit
managerial- Larger firms can hire specialised managers and supervisers who can increase productivity and thereby lower average costs
technical- Larger firms can invest in technology, this increases productivity and thereby increases lower average costs
This is something called Dynamic efficiency
Marketing E.O.S- firms can increase their budgets for advertising, the average cost will therefore
decrease in the long run.
purchasing- Bulk-buying.
Large firms can bulk buy which means each unit will cost them less. Therefore LRAC will decrease
what are external economies of scale
don’t occur within a business but outside but within the industry
what happens with external economies of scale
better transport infrastructure which reduces total cost which then brings down average cost
If suppliers moved closer = firms will save Irac on transport, and they can even monitor the quality closer
reasearch and development firms may move closer
REDUCE TC WILL REDUCE AC
diseconomies of scale are
increase in LRAC as output increases
examples of diseconomies of scale
TC RISES FASTER THE QUANTITY WHICH INCREASES AC
coordination
communication
control
motivation
what is profit the difference between
total revenue and total costs
