4.1.4 Production, Costs and Revenue

Question 1

Define Specialisation

Answer 1

A method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency.

Question 2

What are the Advantages of Specialisation?

Answer 2

Reduces the risk of error
Saves time
Reduces costs

Question 3

Define Capital Widening

Answer 3

When capital inputs increase at the same rate as Labour inputs

Question 4

Define Division of Labour

Answer 4

The process of individuals specialising in tasks and working together

Question 5

Define Productivity

Answer 5

A measure of production representing the output produced by each input

Question 6

Define Law of Diminishing Returns

Answer 6

A prediction that after some o primal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output. This occurs in the short run

Question 7

Why do Diminishing Returns Occur?

Answer 7

If at least one factor is fixed it’s usefulness in relation to other factors is limited. e.g if land is fixed there is a finite amount of space to accommodate workers/equipment

Question 8

Define Short Run

Answer 8

When at least one factor of production is fixed

Question 9

Define Long Run

Answer 9

When all factors of production are flexible

Question 10

Define Returns to Scale

Answer 10

What happens when there is an increase all the factors of production

Question 11

Define Increasing Returns to Scale

Answer 11

If a firm doubles their factors of production and output MORE than doubles

Question 12

Define Constant Returns to Scale

Answer 12

If a firm doubles their factors of production and output ALSO doubles

Question 13

Define Decreasing Returns to Scale

Answer 13

When a firm doubles it’s factors of production and output LESS than doubles

Question 14

Define Production

Answer 14

Involves converting inputs (Factors of Production) into outputs (Goods and Services) via a productive process

Question 15

What are the Factors of Production (Inputs)

Answer 15

Capital
Entrepreneurship
Labour
Land

Question 16

Define Capital

Answer 16

Assets (including cash) which can be used with the productive process

Question 17

What is the Price of Capital

Answer 17

Interest

Question 18

Define Entrepreneurship

Answer 18

The ability/risk taken on to organise the other inputs.

Question 19

What is the Price of Entrepreneurship

Answer 19

Profits

Question 20

Define Labour

Answer 20

The physical/mental input of humans

Question 21

What is the Price of Labour

Answer 21

Wages

Question 22

Define Land

Answer 22

The Natural Resources available to an economy.

Question 23

What is the Price of Land

Answer 23

Rent

Question 24

Define Productivity

Answer 24

Output per unit of Input (Output / Inputs)

Question 25

Define Labour Productivity

Answer 25

Output per unit of Labour (Output / Number of Workers)

Question 26

Define Productive Efficiency (Economy)

Answer 26

Where the economy is using all of its resources as efficiently as possible

Question 27

Define Productive Efficiency (Firm)

Answer 27

Where a firm operates where Average Costs (AC) are at its minimum

Question 28

Define Average Costs (AC)

Answer 28

Costs per unit of output
AC = Total Costs (TC) / Output

Question 29

Define Economies of Scale

Answer 29

Decreasing average costs due to an increase in the size/scale of a firm

Question 30

What are the 6 types of (Internal) Economies of Scale

Answer 30

Managerial Economies
Purchasing Economies
Technical Economies
Risk-Bearing Economies
Financial Economies
Marketing Economies

Question 31

Define Managerial Economies

Answer 31

Employing specialist staff to oversee different operations

Question 32

Define Purchasing Economies

Answer 32

Larger firms can often purchase supplies at lower cost due to bulk orders

Question 33

Define Technical Economies

Answer 33

The ability to purchase better machinery and implement large scale production processes can increase efficiency

Question 34

Define Risk-Bearing Economies

Answer 34

Larger firms are able to attempt to market riskier products as failure has less effect

Question 35

Define Financial Economies

Answer 35

Larger firms often find it easier/cheaper to borrow money

Question 36

Define Marketing Economies

Answer 36

Large firms have a lower unit cost for advertising than small firms.