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Micro Economics > 4.1.4 production, costs and revenue > Flashcards

4.1.4 production, costs and revenue Flashcards

1
Q

define production

A

The conversion of inputs/ factors of production into outputs in the production process

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2
Q

define productivity

A

output per unit of input employed in a given period of time

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3
Q

Define labour productivity

A

output per unit worker per hour/given period of time

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4
Q

state reasons for improved labour productivity

A
  • increased specialisation and division of labour
  • increased education and training
  • increased investment in human capital
  • improvements in performance in related pay - acts as incentive
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5
Q

what is productivity a measure of?

A

efficiency

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6
Q

define productivity gap

A

Difference in productivity levels between different countries

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7
Q

when is an economy productively efficient

A

when it can produce more of one good by producing less of another good

if all inputs/ factors of production are fully utilised to its maximum potential

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8
Q

give two impacts of improved productivity

A

output increases - economies of scale exploited

average costs falls

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9
Q

define specialisation

A

workers performing a narrow range of tasks

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10
Q

define division of labour

A

the production process broken down into smaller tasks

workers are assigned to particular tasks

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11
Q

what is money

A

Medium of exchange

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12
Q

how does specialisation benefit firms

A

specialisation increases productivity - this means lower costs of production therefore profit increases

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13
Q

how does specialisation benefit consumers

A

specialisation means lower opportunity cost of production therefore consumers buy increased quantity of goods and services at a lower price

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14
Q

explain the impact of a lower average cost as a result of increased specialisation

A

Increased supply

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15
Q

drawbacks of specialisation

A
  • monotony
  • higher wages for workers
  • increased cost of production
  • technical unemployment
  • chances of overspecialsation
  • lack of a flexible workforce
  • countries become less self sufficient
  • firms only specialise in one good or service
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16
Q

Negative impacts of specialisation on supply

A

excess supply

prices would have to be lowered to clear this supply

profits therefore decrease as a result

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17
Q

Define short run production

A

One FOP fixed- at least one fixed cost

all other FOP’s are variable - variable costs can change

The scale of production fixed

Maximum output produced due to fixed fop

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18
Q

define long run production

A

all costs and fops are variable

therefore scale of production variable

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19
Q

what is the only way the firm can increase output in the short run

A

Increasing labour

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20
Q

barter system

A

system of exchange in which goods or services are traded directly for other goods or services without the use of money

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21
Q

economic efficiency

A

when both productive and allocative efficiency are present - scarce resources being used in most efficient way from a consumer’s standpoint

22
Q

Total Cost (TC)

A

The total expense incurred by a firm in producing and marketing a product.

23
Q

Average Cost (AC)

A

cost per unit of output

24
Q

Marginal Cost (MC)

A

the change in total costs associated with a one-unit change in output

25
Q

fixed costs

A

costs that remain constant in the short run as output changes

26
Q

variable costs

A

costs that vary with the quantity of output produced

27
Q

TC =

A

FC + VC

28
Q

average cost =

A

TC / output

(can be broken down into AFC and AVC)

29
Q

average fixed cost =

A

FC / output

30
Q

average variable cost =

A

VC / output

31
Q

when is a firm most productively efficient?

A

when MC = AC

32
Q

economies of scale (EoS)

A

reduction in long run AC resulting from an increase in the scale of production

33
Q

diseconomies of scale (DoS)

A

increase in long run AC resulting from an increase in the scale of production

34
Q

internal economies of scale

A

The cost benefits that an individual firm can enjoy when it expands

35
Q

external economies of scale

A

The cost benefits that all firms in the industry can enjoy when the industry expands

36
Q

technical economies of scale

A

reductions in average costs of production due to the use of more advanced machinery

37
Q

marketing economies of scale

A

large firms purchasing its factor inputs in bulk at negotiated discounted prices

38
Q

managerial economies of scale

A

Reductions in average cost as a result of being able to employ specialist managers who are more productive

39
Q

financial economies of scale

A

A situation where large firms are able to borrow money on better terms than smaller firms which makes the cost of financing investment and therefore unit costs lower.

40
Q

Agglomeration

A

Clumping together of industries for mutual advantage, in a distinct geographical location

41
Q

Marginal Revenue (MR)

A

the extra revenue associated with selling an extra unit of output or the change in total revenue with a one-unit change in output

42
Q

Average Revenue (AR)

A

total revenue divided by the quantity of the product sold (price)

43
Q

total revenue

A

the total amount of money a firm receives by selling goods or services

44
Q

price taker

A

a buyer or seller that is unable to affect the market price, operating in a very competitive market

45
Q

price maker

A

A firm with some power to set the price because the demand curve for its output slopes downward; a firm with market power

46
Q

risk bearing economics of scale

A

expanding product range to spread risk e.g. virgin

47
Q

internal diseconomies of scale

A

occurs when firms growth begins to cause LRAC to increase decreasing returns to scale

48
Q

IDEOS examples

A

wastage and loss
communication becomes harder
harder to communicate activity

49
Q

external economy examples

A
  • locals road improve as surrounding industry improves that

- more training/research and development facilities

50
Q

average revenue

A

total rev ÷ quantity
ave rev = price
ave rev curve = demand curve

51
Q

What is profit ?

A

Total revenue - total costs

Micro Economics (5 decks)

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