Definitions-Topic 4: Production Costs And Revenues

Question 1

Automation

Answer 1

Automatic control; the process by which machines control other machines

Question 2

Average cost

Answer 2

Total production cost divided by total output (cost per unit of output)

Question 3

Average revenue

Answer 3

Total revenue divided by total output(revenue per unit of output)

Question 4

Capital productivity

Answer 4

Output per unit of capital

Question 5

Constant returns to scale

Answer 5

When output increases by an equal proportion the increase in inputs

Question 6

Constant returns to scale

Answer 6

When output increases by an equal proportion the increase in inputs

Question 7

Decreasing returns to scale

Answer 7

When out out increases by a smaller proportion than the increase in inputs

Question 8

Diseconomies of scale

Answer 8

When long-run average costs rise as output rises

Question 9

Division of labour

Answer 9

Different workers performing different tasks in a goods/services production, specialising to an extent

Question 10

Economies of scope

Answer 10

When it is cheaper to make a range of products

Question 11

Economies of scale

Answer 11

When long rune average costs fall as output rises

Question 12

External economies of scale

Answer 12

Firms saving resulting from growth of the inducts a firm is part of

Question 13

Fixed cost

Answer 13

Costs of production that do not carry with output , only in the short run

Question 14

Increasing returns to scale

Answer 14

When output increases by a larger proportion than the increase in inputs

Question 15

Internal economies of scale

Answer 15

Firms saving resulting from growth of the firm itself

Question 16

Labour productivity

Answer 16

Output per worker

Question 17

Law of diminishing returns

Answer 17

By continually adding variable factors atop fixed factors , eventually both average and marginal returns to the fixed factor

Question 18

Long run

Answer 18

Time period in which none of the factors of production are fixed, and all can be varied

Question 19

Long-run average cost

Answer 19

Long-run total cost per unit of capital

Question 20

Long-run production

Answer 20

When a firm transfers from becoming more labour intensive to becoming more capital intensive

Question 21

Minimum efficient scale(MES)

Answer 21

The lowest level of output at which average costs are minimised.Dependent on the market structure as well as barriers to entry

Question 22

Normal profit

Answer 22

Total revenue equals total costs; the minimum profit required to keep a firm operating in an industry

Question 23

Operating costs

Answer 23

Same as variable costs

Question 24

Overheads

Answer 24

Same as fixed costs

Question 25

Production

Answer 25

A set of processes that converts inputs into outputs

Question 26

Productive efficiency

Answer 26

Minimised average total cost

Question 27

Productivity

Answer 27

Output per unit of input

Question 28

Profit

Answer 28

Total revenue -total costs

Question 29

Rate of return

Answer 29

Income received from an investment

Question 30

Returns to scale

Answer 30

The scale by which a firms output changes as the scale of all inputs are altered

Question 31

Short-run

Answer 31

Time prior in which at least one of the factors of production are fixed and cannot be varied

Question 32

Specialisation

Answer 32

A worker only performing a specific task or a small range of tasks

Question 33

Sunk cost

Answer 33

Non-recoverable costs of entering a market

Question 34

Supernormal(abnormal)profit

Answer 34

Any level of profit over and above normal profit

Question 35

Technical economies of scale

Answer 35

Cost saving through changing the production process

Question 36

Total cost

Answer 36

Total fixed cost added to total variable cost

Question 37

Total revenue

Answer 37

Price of each good, multiplied by quantity sold

Question 38

Variable cost

Answer 38

Costs incurred when paying for the variable factors of production

Question 39

X-inefficiency

Answer 39

When a firm lacks the incentive to control costs.This causes the average cost of production to be higher than necessary