Business economics

Question 1

Total profit calculation

Answer 1

Total revenue - Total costs

Question 2

What is the main objective of a firm?

Answer 2

To make profit

Question 3

How does a firm achieve more profit?

Answer 3

Increasing revenue or decreasing costs

Question 4

How to increase revenue?

Answer 4

• Increase productivity
• Specialisation
• Division of labour

Question 5

What are the pros of specialisation?

Answer 5

• Increased efficiency
• Increase expertise, no time wasted
• Less time training multiple skills
• Can solve the problem of scarcity, resources being used more efficiently, more output produced per unit of input

Question 6

What are the cons of specialisation?

Answer 6

Workers may become bored

Question 7

Total revenue calculation

Answer 7

Price x quantity sold

Question 8

Total cost calculation

Answer 8

Fixed costs + variable costs

Question 9

What are fixed costs + examples?

Answer 9

Costs that remain constant regardless of the level of output.. e.g Rent, loan repayments, fixed salary costs and marketing

Question 10

What are variable costs + examples?

Answer 10

Costs that change with output e.g Packaging, energy and fuel costs, raw materials, commission bonuses

Question 11

What is the equation for average variable costs?

Answer 11

Total variable costs/output

Question 12

What does the fixed costs curve look like?

Answer 12

Flat

Question 13

What does the variable costs curve look like?

Answer 13

45 degrees

Question 14

What is the short run?

Answer 14

Amount of time by which at least 1 factor of production is fixed

Question 15

What is the long run?

Answer 15

Amount of time whereby all factors can be varied

Question 16

What are the 4 factors of production?

Answer 16

Land, labour, capital and enterprise

Question 17

Equations for:

• Average cost
• Average variable cost
• Average fixed cost
• Marginal cost
• average total cost

Answer 17

Average cost = Total cost/output
Average variable cost = Total variable cost/output
Average fixed cost = Total fixed cost/output
Marginal cost = Change in total cost/change in output
Average total cost = average variable cost + average fixed cost

Question 18

What is the marginal cost?

Answer 18

The cost to produce one more unit

Question 19

What does the graph of AC and MC look like (draw it)?

Answer 19

• Costs on Y axis
• Output on X axis
• MC initially decreases then increases
• AC decreases then decreases, hitting the MC curve at the lowest AC

Question 20

What are the benefits of specialisation?

Answer 20

• It can help with the problem of scarcity, if more resources are used efficiently, more output can be produced per unit of input
• Training costs are limited as workers are only trained to perform simple tasks
• Better quality and higher quantity of products for the same amount of effort overall - i.e. increased labour productivity

Question 21

What are the disadvantages of specialisation?

Answer 21

• Workers can do repetitive tasks which can lead to boredom
• Countries can become less self sufficient and Over reliant. For example if a country specialises in manufacturing and imports all of its fuel, it could be in trouble if it falls out with its fuel supplier
• Lack of flexibility and can lead to structural unemployment, for example if companies move elsewhere then the workforce left behind could find it difficult to adapt

Question 22

What are the 4 functions of money?

Answer 22

• Medium of exchange
• A measure of value
• A store of value
• A standard (or method) of deferred payment

Question 23

Why does the marginal cost curve initially decrease and then begin to increase in the short run?

Answer 23

The law of diminishing returns, so the MC curve is always U shaped

Question 24

What is the law of diminishing marginal returns?

Answer 24

As the level of a variable factor input is increased, marginal product (or marginal returns) will eventually begin to diminish