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Economics A-level > 4.1.4 Production, Costs And Revenue (exc 4.1.4.8) > Flashcards

4.1.4 Production, Costs And Revenue (exc 4.1.4.8) Flashcards

1
Q

What does production do?

A

Converts inputs, or the services of factors of production into final output

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2
Q

What is productivity?

A

Output per unit of input

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3
Q

What is labor productivity?

A

Output per worker

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4
Q

What does the UK’s productivity gap refer to?

A

The difference between labor productivity between the UK and competitor countries

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5
Q

What are the benefits of specialization and division of labor?

A
  • a worker will not need to switch between tasks so time will be saved
  • practice makes perfect
  • capital widening & capital deepening (more or new capital)
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6
Q

What is a drawback of the specialization or division of labor?

A

It involves de-skilling and the creation of boredom and demotivation among workers

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7
Q

What is the use of money?

A

It is used as a medium of exchange

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8
Q

How does specialization allow for an efficient exchange of goods and services?

A

Increases productivity which will increase average and marginal returns

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9
Q

What are total returns?

A

The whole output produced by all the factors of production

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10
Q

What are average returns?

A

Total output divided by the total number of workers employed

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11
Q

What are marginal returns?

A

The change in quantity of total output resulting from the employment of one more worker

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12
Q

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

A

In the short run at least one of the factors of production is fixed
In the long run all factors of production are variable

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13
Q

What is the law of diminishing returns?

A

A short term law which states that as a variable factor of production is added to a fixed factor of production, eventually both the marginal and average returns to the variable factor will begin to fall

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14
Q

Why would productivity fall if you continue to add more of the variable factor to the fixed factor?

A

They will exhaust the fixed factor as it passes its productive capacity

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15
Q

What are returns to scale?

A

The rate at which output changes if the scale of all the factors of production is changed

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16
Q

What does increasing returns to scale mean?

A

When the scale of all the factors of production increases, output increases at a faster rate
% change in output > % change in input

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17
Q

What does constant returns to scale mean?

A

When the scale of all the factors of production increases, output increases at the same rate
% change in output = % change in input

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18
Q

What does decreasing returns to scale mean?

A

When the scale of all factors of production employed increases, input increases at a slower rate
% change in output < % change in input

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19
Q

What are fixed costs?

A

Cost of production which, in the short run, does not change with output

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20
Q

What are variable costs?

A

Cost of production which changes with the amount that is produced

21
Q

What are examples of variable costs?

A

Cost of hiring labor
Cost of buying raw material

22
Q

What are examples of fixed costs?

A

Cost of maintaining the firm’s building
Initial cost of acquiring buildings

23
Q

What is the total cost?

A

All the costs incurred when producing a particular size of output

24
Q

Equation for total costs

A

TC = total fixed cost + total variable cost

25
Q

What is the average variable cost?

A

Total variable cost / quantity of output

26
Q

What is the marginal cost?

A

The addition to total cost resulting from producing one extra unit of output

27
Q

Equation for average total cost

A

ATC = average fixed cost + average variable cost

28
Q

Equation for average fixed cost

A

AFC = TFC / Q

29
Q

Where is the point of diminishing marginal returns in a table?

A

The number BEFORE the decrease

30
Q

What are factor prices?

A

Prices that a firm pays for hiring the different factors of production

31
Q

What are internal economies of scale?

A

Cost saving resulting from the growth of the firm

32
Q

What are external economies of scale?

A

Cost saving from the growth of the industry which the firm is part of

33
Q

Examples of internal economies of scale

A

Technical economies of scale - bringing in special machinery to boost productivity
Financial economies of scale - As a firm grows it becomes able to buy raw materials in bulk so discounts can be negotiates
Marketing economies of scale

34
Q

Examples of external economies of scale

A

Transportation development
Tax breaks from governments

35
Q

What are reasons for diseconomies of scale?

A
  • Managers don’t know what they are doing (managerial diseconomies of scale)
  • Communication failure
  • workers losing motivation (motivational diseconomies of scale)
36
Q

What is marginal revenue?

A

the change in revenue from selling one extra unit of output

37
Q

What is average revenue?

A

Total revenue divided by quantity of output

38
Q

What is total revenue?

A

All the money received by a firm from selling its total output

39
Q

Equation for average revenue

A

AR = TR / Q

40
Q

Equation for marginal revenue

A

Change in TR / change in Q

41
Q

What curve is the average revenue curve also?

A

The demand curve

42
Q

What happens to average revenue when marginal is greater than average?

A

Average revenue increases

43
Q

What happens to average revenue when marginal is less than average?

A

average revenue falls

44
Q

What happens to average revenue when marginal is equal to the average?

A

Average revenue does not change

45
Q

How can increasing marginal revenue be shown?

A

Total revenue curve gets steeper

46
Q

What is profit?

A

The difference between total revenue and total costs
AND
The reward for enterprise

47
Q

What is normal profit?

A

The minimum profit a firm must make to stay in business and fund factors of production
Does not attract firms to the market

48
Q

What is abnormal profit?

A

The extra profit over and above normal profit
Attracts new firms into the market

49
Q

What is the role of profit in a market economy?

A

Creates worker incentive (performance related pay)
Creates shareholder incentives ( high dividends)
A reward for enterprise

Economics A-level (15 decks)

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