4 Production, costs and revenue Flashcards
Define productivity
a measurement of the rate of production by one or more factors of production
Define Specialisation
where an individual worker, firm, region or country produces a limited range of goods/services
Define division of labour
specialisation at the level of an individual worker
Benefits of division of labour
-the worker might become an expert
-reduced time spent moving between tasks
-tasks are broken into smaller ones- more efficient
-allows people to work to their natural strength
Law of diminishing returns
when an additional units of variable factors of production are added to a fixed product will eventually decrease
Returns to scale
the relationship between increases in the quantity of a firm’s inputs and the proportional change in output
Economies of scale
the reduced average total costs that firms experience by increasing output in the long run
Financial economies of scale
the larger the firm - the more likely that banks will lend them money, make the loans cheaper
Technical economies of scale
larger companies can afford the specialist capital equipment
Marketing economies of scale
larger firms - bigger advertising budget
Managerial economies of scale
larger firms can afford to recruit the highest profile chief
External economies of scale
reductions in long-run average total cost
Minimum efficient scale
the lowest level at which average total costs of production are minimised
Perfect competition
- no barriers to entry
- each firm sells identical product
- perfect knowledge of the market
- no firm is larger enough to influence the market price
- a large number of buyers and sellers
Normal profit
the minimum level of profit required to reward the entrepreneur for taking a risk and therefore to stay in a particular line of business
