ch4 flashcards
define production
covering inputs or factor services into outputs of goods and services
what is on the scale of competition
perfect competition, monopolistic competition, oligopoly, monopoly
describe the UK’s productivity puzzle
- when the UK entered recession during the financial crisis in 2008, labour productivity fell significantly, and by 2014 it hadn’t recovered to its level before the crisis
- the UK’s flexible labour markets have been effective in delivering work at a low cost to employers, meaning workers are able to adapt quickly to changes in D and S (zero hours contracts)
- however this lead to labour ‘hoarding’ where employers keep workers in employment even though they are producing little to no output
consequences of the UK’s productivity puzzle
- even greater sacrifices may be demanded by those in work and not looking for work, as if productivity isnt improving, then hourly pay could be cut
solution of the UK’s productivity puzzle
increase investments into newer equipment and infrastructure to boost productivity
what is a firm
a business enterprise that either produces or exchanges goods or services
- a firm is commercial, earning revenue to cover the production costs they incur
describe the japanese method of manufacturing
lean manufacturing combines craftwork and mass production with less labour, machinery, and using less space and time
- this eliminates waste only making what is wanted at a given time
what is specialisation
a worker only performing one task or a narrow range of tasks
what is division of labour
different workers performing different tasks in the course of producing a good or service
ADV of specialisation and DofL - who by - one dadv
adam smith theory:
- workers dont need to switch between tasks which saves time
- more and better machinery and capital can be employed
- practice makes perfect
however deskilling and alienation of workers can happen and boredom
describe previous means of trade and compare with modern
- trade used to be done by barter, exchanging what you produce wih what you need to buy, which required a ‘double coindidence of wants’ which is not applicable in modern economies with vast no. goods so we made a method of exchange (money) where only the value has to match
what is the difference between short run and long run costs
- short run costs are made up of fixed costs and the costs incurred when hiring the services of the variable factors of production
- long run costs are always variable costs, as fixed costs don’t exist in the long run when a firm can move from one size to another
equation for total cost
TC = TFC + TVC
equation for average total cost
ATC = AFC + AVC
define fixed cost
a cost of production which in the short run does not change with output
define variable cost
a cost of prodction which changes with the amount that is produced, even in the short run
define total cost
all costs incurred when producing a particular size of output
explain the difference between fixed and variable costs
- fixed costs are the costs a firm incurs when hiring or paying for the fixef FsOP
- in the short run, capital is assumed to be a fixed FOP, so costs do not change (costs include maintaining the firm’s building)
- however, variable costs change as the level of output changes
- the costs of hiring labour and buying raw materials are usually regarded as variable costs of production (in the long run all costs are variable as all the FsOP can be changed)
explain the difference between total cost, average variable cost and marginal cost
- when a firm increases its output, the total cost of production increases
- at any level of output, the average cost can be calculated by dividing total cost by the size of the output produced
- marginal cost is the addition to total cost of producing one additional unit of output
describe the shape of the short run average fixed cost curve (AFC)
- AFC curves always slope downwards to the right, with costs approaching zero but never touching x-axis
- this is because the higher level of output, the more spread the costs are over a larger amount of output
describe the shape of the short run average total cost curve (ATC)
- average total cost curve is obtained by adding together the output of the AFC and AVC curves
- this curve is a U shape, which gets very close to the AVC curve but never touches, as the very small amount of AFC is being added on, and is never zero
what are sunk costs + example
costs incurred which cannot be recovered if the business closes. e.g. advertising
what are some points to remember when all cost curves are put on the same graph
- the marginal cost curve cuts through from below both the AVC and ATC curves at the turning point of both
what are economies of scale
- falling long-run average costs of production that result from an increase in the size of scale of the firm