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economics > 4.1.4 production costs and revenues > Flashcards

4.1.4 production costs and revenues Flashcards

1
Q

what is production

A

converts inputs or the services of factors of production such as capital and labour, into final inputs- goods and services

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2
Q

define productivity

A

output per unit of input

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3
Q

define labour productivity

A

output per worker

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4
Q

define specialisation

A

the concentration of production on a narrow range of goods and services

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5
Q

5 advantages of specialisation

A

efficient production, exports, growth
wider range of goods (eg Dyson)
allocative efficiency
increased productivity
increased quality

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6
Q

4 disadvantages of specialisation

A

if finite resources used up, firm could shut
change in tastes could lead to firm shutting
deindustrialisation
national interdependence

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7
Q

define division of labour

A

breaking down the production process into seperate tasks upon specialisation

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8
Q

3 advantages of specialisation of workers

A

more productive workers decreasing costs
specialist capital can be used
lower prices, increased quality

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9
Q

4 disadvantages of specialisation of workers

A

demotivation of workers
high worker turonover
risk of LT unemployment from tech advances
standardised goods and services

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10
Q

define trade

A

buying or selling of goods and services

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11
Q

define exchange

A

to give something in return for something else recieved
money is the medium of exchange

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12
Q

why is exchange necessary when specialising

A

so people can consume outside of their specialisation

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13
Q

define the short run (micro)

A

scale of production is fixed
at least one fixed cost

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14
Q

define the long run (micro)

A

scale of production is flexible
all costs are variable

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15
Q

marginal returns

A

the extra output gained from one extra unit of input/factor employed

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16
Q

average return

A

output per unit of input

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17
Q

total returns

A

total output produced by a number of factors

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18
Q

what is the law of diminishing returns

A

in the short run when variable factors (labour) are added to a stock of fixed factors (land) total and marginal product will initially rise and then fall

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19
Q

when is total product maxed
when marginal product…

A

equals zero

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20
Q

returns to scale

A

change in output of a firm in response to a change in factor inputs

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21
Q

constant returns to scale

A

output rises by same amount as input

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21
Q

increasing returns to scale

A

output rises by a greater proportion than to the increase in inputs

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22
Q

decreasing returns to scale

A

output rises by less than input has risen

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23
Q

fixed costs

A

costs do not vary with output
eg rent

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24
Q

variable costs

A

change with output
eg raw materials

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25
Q

marginal costs

A

cost of producing one extra unit

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26
Q

average cost

A

cost per unit
total cost/quantity

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27
Q

total costs

A

total variable costs + total fixed costs

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28
Q

short run costs

A

fixed and variable factors

29
Q

long run costs

A

all factors of production are fixed

30
Q

if factors inputs become more productive what happens to cost of production

A

decreases

31
Q

if average costs per unit of a factor (eg labour) increases what will firms do

A

switch to cheaper inputs (eg capital)

32
Q

explain shape of marginal cost

A

initially decreases due to increased specialisation then increases due to diminishing returns

33
Q

explain shape of average cost

A

reflects economies and diseconomies of scale
U shape

34
Q

explain shape of total cost

A

steady rise due to total fixed costs decreasing output

35
Q

define economies of scale

A

cost advantages a firm gains from increasing output

36
Q

define internal economies of scale

A

when a firm becomes larger, average cost of production falls as output increases

37
Q

types of internal economies of scale (6)

A

risk bearing
financial
managerial
technological
marketing
purchasing

38
Q

risk bearing economies of scale

A

can expand a production range as they have more to fall back on

39
Q

financial economies of scale

A

banks are more willing to lend loans to larger firms

40
Q

managerial economies of scale

A

larger firms are more able to specialise which decreases cost of production

41
Q

technological economies of scale

A

larger firms can afford to invest in productive capital

42
Q

marketing economies of scale

A

larger firms can divide their marketing budget across output

43
Q

purchasing economies of scale

A

larger firms can bulk buy which is cheaper

44
Q

define external economies of scale

A

cost advantages for multiple firms

45
Q

infrastructure external economies of scale

A

transport services can decrease cost of production

46
Q

knowledge/labour pool external economies of scale

A

concentration of labour and knowledge sharing can incraese productivity and drive down costs of production

47
Q

supplier network external economies of scale

A

clusters of related businesses can lead to a strong supplier network

48
Q

real example of external economies of scale

A

Media City- Salford

49
Q

define diseconomies of scale

A

output passes a certain point and average cost starts to increase

50
Q

reasons for diseconomies of scale (3)- explained

A

control: becomes harder to monitor workforce productivity as firm becomes larger
coordination: harder to coordinate workers to tasks when there are more
communication: workers may feel alienated leading to demotivation and decreased productivity which will increase costs

51
Q

what occurs at minimum point on LRAC curve

A

minimum efficient scale
optimum levcels of output and economies of scale have been utilised

52
Q

explain the shape of the L shaped average cost curve

A

to begin with, cost per unit falls as output increases due to economies of scale
even if their are disceonomies of scale (managerial) these are offset by tecnological/purchasing/etc economies of scale
and therefore in LR costs continue to fall even in they are falling at a slower rate

53
Q

define total revenue

A

revenue gained from the sale of a given quantity

54
Q

how do you calculate TR

A

price x quantity

55
Q

define average revenue

A

average receipt per unit
it is equal to the price

56
Q

how do you calculate TR

A

AR X Q

57
Q

define marginal revenue

A

extra revenue earned from the sale of one extra unit

58
Q

why is the AR curve the firms demand curve

A

AR is the price of the good
when firms are price takers it is completely horizontal

59
Q

calculate MR

A

change in TR/change in quantity

60
Q

define profit

A

differnce between TR and TC

61
Q

define normal profit

A

minimum reward required to keep entreupeners supplying the enterprise
when TR=TC
profit is zero

62
Q

define supernormal profit

A

when TR>TC
exceeds the value of opp cost when investing funds into the firm

63
Q

role of profit in free market economy

A

rewards entreperunes when taking risks and investing
can be retaiend by firms and reinvested which is cheaper than dealing with IR when borrowinh
acts as a signal for firms and consumers

64
Q

invention

A

the process of creating a new product or new way to make a product

65
Q

innovation

A

improving or contributing to existing products

66
Q

technological change impact on efficiency and productivity

A

increases efficiency and productivity

67
Q

technological change can lead to the…

A

development of new products, new markets and may destroy existing markets

68
Q

explain creative destruction

A

by Joeseph Schuempter
new entreuprenurs are innovative which challenges existing firms, the more productive firms grow and the least productive firms are forced to leave the market
this leads to an overall expansion of the economies PPF

69
Q

innovation in monopolies

A

monopolies do not have incentive to innovate as they have no competition, meaning they are often inefficient and costs arre higher than they could be

70
Q

innovation in oligopolies

A

oligopolies have more incentive (than monopolies) to innovate, since they are earning supernormal profit and are trying to get ahead of there competitors
thus technological change is fast in oligopolies

71
Q
A

economics (9 decks)

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