Business Economics Flashcards
Labour productivity equation
The amount of output in a specific time/ The total number of workers OR the total hours worked
How to improve labour productivity?
Training, more experience, improved technology, specialisation.
What is specialisation?
The division of labour.
Advantages of specialisation:
-Increased productivity
-Better quality and quantity of products
-EoS can be achieved
-More efficient
-Training costs reduced
Disadvantages of specialisation:
-Repetition can lead to decreased productivity because of boredom
-Countries become less self sufficient because of specific products.
-Lack of flexibility
Fixed costs of a firm
-Don’t vary with output in short run
-Rent on a shop
Fixed costs of a firm
-Don’t vary with output in short run
-Rent on a shop
Variable costs of a firm
-Do vary with output
-Cost of plastic bags, more output = more bags needed. Meaning overall costs increase
Average cost=
TC (total cost) / Q (quantity)
Average Fixed cost=
TFC (total fixed cost) / Q (quantity)
Average variable cost=
TVC (total variable cost) Q (quantity)
Marginal cost definition
MC is is the extra cost incurred as a result of producing the final unit of output
MC=
Change in TC (total cost) / Change in Q (quantity)
What is total return
The total return of a factor is the total output produced by a number of units of
factors (e.g. labour) over a period of time. The amount of capital is fixed.
What is diminishing returns
Diminishing returns only occur in the short run.
The variable factor could be increased in the short run. An extra unit of labour adds less to the total output than the unit of labour before.
Therefore, total output still rises, but it increases at a slower rate.
What is returns to scale
Returns to scale refers to the change in output of a firm after an increase in factor inputs.
How to get around diminishing returns
the rise of things like out-sourcing means that firms can cut their costs and their production can be flexible.
What is increasing returns to scale?
Returns to scale increases when the output increases by a greater proportion to the
increase in inputs. Eg,, if input doubles, and output quadruples
What is constant returns to scale?
Constant returns to scale are when output increases by the same amount that input
increases by.
What is decreasing returns to scale?
A doubling of input leads to a 1.5 times increase in output,
there are decreasing returns to scale. This is linked to diseconomies of scale, since it
occurs when the firm becomes less productive
Internal EoS
These occur when a firm becomes larger. Average costs of production fall as output
increases.
(internal EoS) Really Fun Mums Try Making Pies
Risk-bearing
Financial
Managerial
Technological
Marketing
Purchasing
External EoS
These occur within the industry.
For example, local roads might be improved, so transport costs for the local
industries will fall.
More training facilities or more research and development,
which will also lower average costs for firms in the local area.
Diseconomies of Scale
These occur when output passes a certain point and average costs start to increase per extra unit of output produced. Eg. control and co ordination of the firm.
