4 - Production, Costs and Revenue Definitions

Question 1

Specialisation

Answer 1

An organisation focusing on the production on a few goods in order to be made efficient.

Question 2

Division of Labour

Answer 2

The separation of a work process into a number of tasks, with each task performed by a separate person or group of people.

Question 3

Trade

Answer 3

A concept involving the purchase and sale of goods and services, with compensation paid to a seller by a purchaser or the exchange of goods or services.

Question 4

Exchange

Answer 4

A marketplace where securities, commodities, and other financial instruments are traded.

Question 5

Production

Answer 5

The process by which different inputs, including capital, labour and land, are used to create outputs in the form of products or services.

Question 6

Short - Run Production

Answer 6

The process of utilising one or more inputs to produce output over a period of time where at least one input is fixed.

Question 7

Long - Run Production

Answer 7

All factors of production and costs are variable.

Question 8

Productivity

Answer 8

How much output can be produced with a given set of inputs.

Question 9

Labour Productivity

Answer 9

The measure of how much output is produced per unit of labour input.

Question 10

Capital Productivity

Answer 10

The measure of how well physical capital is used in providing goods and services.

Question 11

Productivity Gap

Answer 11

The difference between one country’s productivity levels, in comparison with the country’s main export competitors.

Question 12

Short Run

Answer 12

Within a certain time period, at least one input is fixed, while others remain variable.

Question 13

Long Run

Answer 13

All factors of production and costs are variable.

Question 14

Marginal Returns

Answer 14

The rate of return for a marginal increase in investment.

Question 15

Average Returns

Answer 15

The mathematical average of a series of returns generated over a specific period of time.

Question 16

Total Return

Answer 16

The actual rate of return of an investment or a pool of investments over a period.

Question 17

Law of Diminishing Returns

Answer 17

As investment in a particular area increases, the rate of profit from the investment after a certain point, can’t continue to increase if other variables remain constant.

Question 18

Increasing Returns to Scale

Answer 18

Constant returns to scale, output increases by a larger proportion than the increase in inputs during the production process.

Question 19

Constant Returns to Scale

Answer 19

Increasing the number of inputs leads to an equivalent increase in the output.

Question 20

Decreasing Returns to Scale

Answer 20

The proportion of output is less than the desired increased input during the production process.

Question 21

Total Cost

Answer 21

Fixed costs + variable costs.

Question 22

Average Cost

Answer 22

Total Cost / Quantity.

Question 23

Long Run Average Cost

Answer 23

The lowest cost at which a firm can produce a given level of output in the long run, when all inputs are variable.

Question 24

Technical Economy of Scale

Answer 24

A firm produces goods or resources more efficiently.

Question 25

Internal Economy of Scale

Answer 25

The cost advantage a firm can achieve as a result of its own growth and expansion.

Question 26

External economies of Scale

Answer 26

Cost advantages a firm can receive due to external factors.

Question 27

Total Revenue

Answer 27

Price per unit x Quantity Sold.

Question 28

Average Revenue

Answer 28

Total Revenue / Quantity.

Question 29

Marginal Revenue

Answer 29

The additional revenue a company earns from selling one more unit of a good or service.

Question 30

Perfect Competition

Answer 30

A market with many buyers and sellers, free entry and exit, perfect information, and no government intervention.

Question 31

Monopoly

Answer 31

A single firm dominates the entire market for a product or service.

Question 32

Price - Taker

Answer 32

Firm that had no control over the market price of the product or service it sells or buys.

Question 33

Price - Maker

Answer 33

A firm that has the power to influence the price of the goods or services it sells.

Question 34

Quantity Setter

Answer 34

A firm that has the ability to determine the quantity of a good or service it supplies to the market.

Question 35

Profit

Answer 35

How much a business makes when total revenue exceeds total costs.

Question 36

Profit Maximisation

Answer 36

The process in which a firm determines the price and output level, generating the greatest profit.

Question 37

Normal Profit

Answer 37

The minimum level of profit needed for a business to remain competitive in the market.

Question 38

Technological Change

Answer 38

The process of developing and adopting new technologies, improving existing technology, applying them in new ways.

Question 39

Invention

Answer 39

The creation of a new device, method, composition, or process which didn’t previously exist.

Question 40

Innovation

Answer 40

The process of developing and implementing new ideas.

Question 41

Creative Destruction

Answer 41

New innovations and technologies lead to the dismantling of outdated industries and economic structures.

Question 42

Productive Efficiency

Answer 42

An economy produces goods and services at the lowest possible cost, utilising resources in the most efficient way.

Question 43

Dynamic Efficiency

Answer 43

The ability of an economy, industry, or firm to improve over time - through innovation and adaptation.