4 Production Costs and Revenues

Question 1

How is productivity calculated?

Answer 1

By output per worker per period of time

Question 2

What does being more productive mean?

Answer 2

The same input, such as the number of workers, produces more outputs over the same period of time

Question 3

How come productivity be increased?

Answer 3

By training workers are using more advanced capital machinery

Question 4

What does being more productive mean?

Answer 4

It lowers average costs per unit of output

Question 5

Which Economist stated the concept of specialisation?

Answer 5

Adam Smith

Question 6

In terms of the Adam Smith concept, what is specialisation and how can it be achieved?

Answer 6

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

Question 7

What are advantages of specialisation?

Answer 7

Increased efficiency and lower average costs of production
Opportunity to create a greater variety of goods and services
More opportunities for economies of scale

Question 8

Are some disadvantages of specialisation?

Answer 8

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

Question 9

What is the comparative advantage?

Answer 9

When a country can produce a good at lower opportunity cost to another

Question 10

When does absolute advantage occur?

Answer 10

When a country can produce more of the good with the same fact inputs

Question 11

What are some advantages of specialisation in the production of goods and services to trade?

Answer 11

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

Question 12

What are some disadvantages of specialisation in the production of goods and services to trade?

Answer 12

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

Question 13

What are the functions of money?

Answer 13

A medium of exchange, a measure of value, a store of value, a method of deferred payment

Question 14

What is the difference between short run and the long run?

Answer 14

In the short run there is at least one fixed cost whereas in the long run or costs are variable

Question 15

What is the marginal return of a factor?

Answer 15

The extra output derived per extra units of factor employed

Question 16

What is the average return of a factor?

Answer 16

The output per unit of output. This is output per worker over a period of time

Question 17

What is the total return of the fact it?

Answer 17

The total output produced by number of units of factors over a period of time

Question 18

When do you diminishing returns occur?

Answer 18

Only in the short run

Question 19

What does the law of diminishing returns assume?

Answer 19

That firms have fixed the fact that resources in the short run and that the state of technology remains constant

Question 20

What is returns to scale?

Answer 20

Returns to scale refers to the change in output of the firm after an increase in fact inputs.

Question 21

When do returns to scale increase?

Answer 21

When the output increases by a greater proportion to the increase in inputs

Question 22

What are decreasing returns to scale linked to?

Answer 22

This economies of scale since it occurs when the firm becomes less productive

Question 23

What are constant returns to scale?

Answer 23

When output increases by the same amount that inputs increases by

Question 24

When can there be fixed costs?

Answer 24

In the short run as at least one factor of production cannot change

Question 25

When are all costs variable?

Answer 25

In the long run as a factor inputs can change

Question 26

What are fixed costs?

Answer 26

Costs that do not vary with output. For example, rents, advertising and capital goods are fixed costs. They are in direct

Question 27

What are variable costs?

Answer 27

They are direct costs that change with output. For example, the cost of raw materials increases as output increases

Question 28

What is total cost?

Answer 28

The cost to produce a given level of output and it is calculated by: total costs = total variable costs + total fixed costs

Question 29

What is average costs?

Answer 29

The cost per unit and is calculated by: total costs divided by quantity produced

Question 30

What is the marginal cost of production?

Answer 30

The cost of producing one extra unit of output

Question 31

Why is the short run average total cost curve U-shaped?

Answer 31

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