Key Terms 4 - Production, Costs and Revenue Flashcards
Production
Converts inputs or factor services into outputs of goods and services.
Factors of Production
Inputs into the production process such as land, labour, capital and enterprise.
Productivity
Output per unit of input.
Labour Productivity
Output per worker.
Capital Productivity
Output per unit of capital.
Productivity Gap
The difference between labour productivity, e.g., in the UK and in other developed countries.
Firm
A productive organisation which sells its output of goods and/or services commercially.
Specialisation
A worker only performing one task or a narrow range of tasks. Also, different firms specialising in producing different goods or services.
Division of Labour
This concept goes hand in hand with specialisation. Different workers perform different tasks in the course of producing a good or service.
Trade
The buying and selling of goods and services.
Exchange
To give something in return for something else received. Money is a medium of exchange.
Fixed Cost
Cost of production which, in the short run, does not change with output.
Variable Cost
Cost of production which changes with the amount that is produced, even in the short run.
Total Cost
All the cost incurred when producing a particular size of output.
Average Variable Cost
Total variable cost divided by the size of output.
Marginal Cost
Addition to total cost resulting from producing one additional unit of output.
Average Fixed Cost
Total cost of employing the fixed factors of production to produce a particular level of output, divided by the size of output: AFC=TFC/Q.
Average Total Cost
Total cost of producing a particular level of output, divided by the size of the output: ATC=AFC+AVC
Long Run Average Cost
Long run total cost divided by output.
Economies of Scale
As output increases, long-run average cost falls.
Internal Economies and Diseconomies of Scale
Changes in long-run average costs of production resulting from changes in the size or scale of a firm or plant.
External Economy of Scale
A fall in long-term average costs of production resulting from, the growth of the market or industry of which the firm is a part.
External Diseconomy of Scale
An increase in long-run average costs of production resulting from the growth of the market or industry of which the firm is a part.
Diseconomies of Scale
As output increases, long-run average cost rises.
Perfect Competition
A market that displays the six conditions of: a large number of buyers and sellers; perfect market information; the ability to buy or sell as much as is desired at ruling market price; the inability of an individual buyer or seller to influence the market price; a uniform or homogeneous product; and no barriers to entry or exit in the long run.
Price-Taker
A firm which is so small that it has to accept the ruling market price. If the firm raises its price, it losses all its sales; if it cuts its price, it gains no advantage.
Price-Maker
When a firm faces a downward-sloping demand curve for its product, it possesses the market power to set the price at which it sells the product.
Profit Maximisation
Occurs at the level of output at which total profit is greatest.
Quantity-Setter
When a firm faces a downward-sloping demand curve for its product, it possesses the market power to set the quantity of the good it wishes to sell.
