4 Production Costs and Revenues Flashcards
How is productivity calculated?
By output per worker per period of time
What does being more productive mean?
The same input, such as the number of workers, produces more outputs over the same period of time
How come productivity be increased?
By training workers are using more advanced capital machinery
What does being more productive mean?
It lowers average costs per unit of output
Which Economist stated the concept of specialisation?
Adam Smith
In terms of the Adam Smith concept, what is specialisation and how can it be achieved?
Specialisation occurs when each worker complete a specific task in the production process. It’s can be achieved through the division of labour when worker productivity can increase
What are advantages of specialisation?
Increased efficiency and lower average costs of production
Opportunity to create a greater variety of goods and services
More opportunities for economies of scale
Are some disadvantages of specialisation?
Work becomes repetitive which could lower the motivation of workers, there could be more structural unemployment, there could be higher worker turnover for firms as workers become dissatisfied with their jobs more regularly
What is the comparative advantage?
When a country can produce a good at lower opportunity cost to another
When does absolute advantage occur?
When a country can produce more of the good with the same fact inputs
What are some advantages of specialisation in the production of goods and services to trade?
Greater world output, so there is again in economic welfare
Lower average costs, since the market becomes more competitive
There is an increase supply of goods to choose from
There is an outward shift in the PPF curve
What are some disadvantages of specialisation in the production of goods and services to trade?
Less-developed countries might use up the nonrenewable resources to quickly, so they might run out.
Countries could become overdependent on the Xbox of one commodity, such as wheat. If there are poor weather conditions, or the price falls, then the economy would suffer
What are the functions of money?
A medium of exchange, a measure of value, a store of value, a method of deferred payment
What is the difference between short run and the long run?
In the short run there is at least one fixed cost whereas in the long run or costs are variable
What is the marginal return of a factor?
The extra output derived per extra units of factor employed
What is the average return of a factor?
The output per unit of output. This is output per worker over a period of time
What is the total return of the fact it?
The total output produced by number of units of factors over a period of time
When do you diminishing returns occur?
Only in the short run
What does the law of diminishing returns assume?
That firms have fixed the fact that resources in the short run and that the state of technology remains constant
What is returns to scale?
Returns to scale refers to the change in output of the firm after an increase in fact inputs.
When do returns to scale increase?
When the output increases by a greater proportion to the increase in inputs
What are decreasing returns to scale linked to?
This economies of scale since it occurs when the firm becomes less productive
What are constant returns to scale?
When output increases by the same amount that inputs increases by
When can there be fixed costs?
In the short run as at least one factor of production cannot change
When are all costs variable?
In the long run as a factor inputs can change
What are fixed costs?
Costs that do not vary with output. For example, rents, advertising and capital goods are fixed costs. They are in direct
What are variable costs?
They are direct costs that change with output. For example, the cost of raw materials increases as output increases
What is total cost?
The cost to produce a given level of output and it is calculated by: total costs = total variable costs + total fixed costs
What is average costs?
The cost per unit and is calculated by: total costs divided by quantity produced
What is the marginal cost of production?
The cost of producing one extra unit of output
Why is the short run average total cost curve U-shaped?
Due to the law of diminishing returns because the factors of production are fixed so at one point, employing more resources will be less productive, which means the marginal output decreases put extra factor of production. Marginal costs start to increase
