Business Economics Flashcards
What is production?
Manufacturing something in order to sell it
What is productivity?
The output per factor employed
What is labour productivity?
The output per worker or output per hour worked
What is specialisation?
When a person, firm or country focuses on a limited range of goods and services
What is division of labour?
A type of specialisation where production is split into different tasks and specific people are allocated to each task
What are the advantages of specialisation?
-People can specialise in what they do best, which leads to better quantity and quality of goods
- More efficient production
-Training costs are reduced
Disadvantages of specialisation?
- Workers end up doing the same thing in repetition, can result in boredom
- Countries become less self-sufficient
- Lack of flexibility
What is a firm?
Any sort of business organisation
What is an industry?
A place where all firms provide similar goods & services
What is the formula for profit?
Total revenues - Total costs
What is the short run?
A period of time where at least one factor of production is fixed
What is the long run?
A period of time where all factors of production are variable
What is a fixed cost?
A cost that doesn’t vary with output, it must be paid even if the firm is producing nothing
What is a variable cost?
A cost that varies with output, as output increases these costs increase
What happens to all costs in the long run?
They all become variable costs
What are total costs?
All the costs involved in producing at a particular level of output
What is the formula for total costs?
Total costs = total fixed costs + total variable costs
What is average cost?
The cost per unit produced
What is the formula for average costs?
Average costs = Total costs/ Quantity
What is the formula for average fixed costs?
Average fixed cost = Total fixed cost/ quantity
What is the formula for average variable costs?
Average variable costs = Total variable costs/ quantity
What is marginal cost?
The extra cost incurred as a result of producing an additional unit of output
What are marginal costs affected by?
Variable costs
Where does the lowest average cost occur?
When marginal cost = average cost
What is marginal product?
The additional output produced by adding one more unit of a factor input
What happens as marginal returns rise?
Marginal costs fall
What happens as marginal returns fall?
Marginal costs rise
How can productivity be improved?
-Through better management and training
- Improved technology
What are economies of scale?
The cost advantages of production on a large scale
What are the types of internal economies of scale?
- Technical
- Purchasing
- Managerial
- Financial
- Risk-bearing
- Marketing
What are internal economies of scale?
Change that occur within a firm
What are external economies of scale?
Change that occur outside of a firm
What are diseconomies of scale?
The disadvantages of being big firms
What are the diseconomies of scale?
- Communication
- Control
- Coordinate
- Motivation
What are increasing returns to scale?
When an increase in all factor inputs lead to a bigger overall increase in output
What are constant returns to scale?
When an increase in all factor inputs lead to the same overall increase in output
What are decreasing returns to scale?
When an increase in all factor inputs lead a less overall increase in output
What are returns to scale?
How much output changes as input is changed
What is minimum efficient scale of production?
The lowest level of output at which the minimum possible average cost can be achieved
What is revenue?
The money a firm receives from selling their goods & services
What is total revenue?
The total amount of money received in a period of time from a firm’s sales
What is the formula for total revenue?
Total revenue = total quantity x price
What is average revenue?
The revenue per unit sold
What is the formula for average revenue?
Average revenue = Total revenue / quantity sold
What is marginal revenue?
The extra revenue received as a result of selling an additional unit of output
What does the demand curve of a price taking firm look like?
Perfectly elastic (horizontal line)
What is PED when total revenue is maximised?
PED = -1
What is marginal returns at when total revenue is at its maximum?
MR = 0
When does normal profit occur?
When total revenue = total costs
When does supernormal profit occur?
When total revenue > total costs
When can a firm continue to produce in the short - run?
When the firm’s total revenue is greater than its total variable costs
When is profit maximised?
When MC = MR
What is the main objective of a firm?
To profit maximise
When does a firm revenue maximise?
When MR = 0
When does a firm sales maximimse?
When AR = AC
