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Economics Micro > Business Economics > Flashcards

Business Economics Flashcards

1
Q

Labour productivity equation

A

The amount of output in a specific time/ The total number of workers OR the total hours worked

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2
Q

How to improve labour productivity?

A

Training, more experience, improved technology, specialisation.

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3
Q

What is specialisation?

A

The division of labour.

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4
Q

Advantages of specialisation:

A

-Increased productivity
-Better quality and quantity of products
-EoS can be achieved
-More efficient
-Training costs reduced

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5
Q

Disadvantages of specialisation:

A

-Repetition can lead to decreased productivity because of boredom
-Countries become less self sufficient because of specific products.
-Lack of flexibility

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6
Q

Fixed costs of a firm

A

-Don’t vary with output in short run
-Rent on a shop

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6
Q

Fixed costs of a firm

A

-Don’t vary with output in short run
-Rent on a shop

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7
Q

Variable costs of a firm

A

-Do vary with output
-Cost of plastic bags, more output = more bags needed. Meaning overall costs increase

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8
Q

Average cost=

A

TC (total cost) / Q (quantity)

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9
Q

Average Fixed cost=

A

TFC (total fixed cost) / Q (quantity)

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10
Q

Average variable cost=

A

TVC (total variable cost) Q (quantity)

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11
Q

Marginal cost definition

A

MC is is the extra cost incurred as a result of producing the final unit of output

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12
Q

MC=

A

Change in TC (total cost) / Change in Q (quantity)

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13
Q

What is total return

A

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.

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14
Q

What is diminishing returns

A

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.

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15
Q

What is returns to scale

A

Returns to scale refers to the change in output of a firm after an increase in factor inputs.

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16
Q

How to get around diminishing returns

A

the rise of things like out-sourcing means that firms can cut their costs and their production can be flexible.

17
Q

What is increasing returns to scale?

A

Returns to scale increases when the output increases by a greater proportion to the
increase in inputs. Eg,, if input doubles, and output quadruples

18
Q

What is constant returns to scale?

A

Constant returns to scale are when output increases by the same amount that input
increases by.

19
Q

What is decreasing returns to scale?

A

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

20
Q

Internal EoS

A

These occur when a firm becomes larger. Average costs of production fall as output
increases.

21
Q

(internal EoS) Really Fun Mums Try Making Pies

A

Risk-bearing
Financial
Managerial
Technological
Marketing
Purchasing

22
Q

External EoS

A

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.

23
Q

Diseconomies of Scale

A

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.

24
Q

Long run average cost curve

A

Lowest point of the curve is the minimum efficiency scale. Costs of production are lowest at this point

25
Q

Total Revenue

A

Total revenue (TR) is calculated by price times quantity sold. This is the revenue
received from the sale of a given level of output.

26
Q

Average Revenue

A

Average revenue (AR) is the average receipt per unit. This is calculated by TR /
quantity sold. In other words, this is the price each unit is sold for.

27
Q

Marginal Revenue

A

Marginal revenue is the extra revenue earned from the sale of one extra unit. Marginal Revenue = Change in Revenue / Change in Quantity

28
Q

Why is the average revenue curve the firm’s demand curve

A

The AR curve is the firm’s demand curve. This is because the average revenue curve is the price of the good.

29
Q

The relationship between average revenue and marginal revenue

A

When demand is perfectly elastic, marginal revenue = average revenue. Marginal revenue is equal to the average revenue in a perfectly competitive market structure.

30
Q

The relationship between marginal revenue and total revenue

A

Marginal revenue measures the change in total revenue with respect to changes in
the amount of goods and services sold. Marginal revenue is calculated by the change
in total revenue divided by the change in quantity sold.

31
Q

What is profit?

A

Profit is the difference between total revenue and total costs.

32
Q

What is normal profit?

A

It covers the opportunity cost of investing funds into the
firm and not elsewhere. This is when total revenue = total costs (TR = TC).

33
Q

What is supernormal profit?

A

Supernormal profit is the profit above normal profit. This exceeds the value of opportunity cost of investing funds into the firm. This is when TR > TC.

34
Q

What does supernormal profit do to the market?

A

Profits can also act as a signal to firms and consumers. For example, in markets
where firms make supernormal profits, there are likely to be new firms entering the
market since the market seems profitable. This increases market supply and lowers
the market price.

35
Q

Are small and medium firms important?

A

Small and Medium Sized Enterprises (SMEs) are important for creating a competitive
market. They create jobs, stimulate innovation and investment and promote a
competitive environment. This is the
idea that new entrepreneurs are innovative, which challenges existing firms.

36
Q

Why do monopolies not innovate?

A

Monopolies do not have an incentive to innovate, since they have no competition.
This means they are often inefficient and their costs are higher than they could be.

37
Q

Why do oligopolies innovate?

A

Oligopolies tend to have more of an incentive to innovate, since they are earning
supernormal profits and are trying to get ahead of their competitors. This means
that technological change is quite fast in oligopolies.

38
Q

Examples of fixed costs:

A

Rent
Salaries
Interest on loans
Advertising
Business rates

39
Q

Examples of variable costs:

A

Wages
Utility bills
Raw material costs
Transport costs

40
Q

What happens in the long run with FoP

A

All factors of production become variable

Economics Micro (10 decks)

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