Micro 3.1.3 Production, costs and revenue Flashcards
define productivity
a measure of how much a factor of production can produce in a given time period. For example, productivity of land might be measured by output per hectare per year
define labour productivity
a measure of how much a worker can produce in a given period of time
formula of labour productivty
total output/number of workers
what is specilisation
refers to the focus of individuls, firms, or economies on producing a limited range of goods or services in which they have a comparative advantage, allows them to become more efficient and increase output
what is medium of exchange
allow goods and servcies to be traded without the need for a barter system
money is a medium of exchange
advantages of specialisation
- high output - increase trade and growth
- wide range of goods and servcies
- great allocative efficiency
- high productivty
- quality improvements
disadvantages of specialisation
- finite resources
- change in fashion/tasks
- de-industrialisation
advantages of division of labour
- workers highly productive
- specialist capital workers
- lower prices
- higher quality/choice for consumers
disadvantages of division of labour
- workers demotivated
- high worker turnover
- risk of long term unemployment
- high standardised goods/services
define costs of production
the expenses incurred by the firms in producing goods and services
these costs can be spilt into variable and fixed costs
what are marginal costs
the change in total cost when one more or one fewer unit of output is produced
3 examples of variable and fixed costs
variable:
raw materials
utilitie bills
production supplies
fixed:
rent
insurance
salaries
what is the difference between long and short run costs
Short-run: at least one or more factor of production are fixed, capital is fixed
Long-run: all factors of production are variable so its fixed and variable costs can be adjusted, capital can be changed
define economies of scale
the cost advantage that firms expierence as they increase their scale of production.
reduction in LRAC as output increases
As firms grow larger, they can lower their average costs due to factors like bulk purchasing, improved managerial efficiency, and technological advancements. These benefits allow firms to become more competitive in the market
what are the 2 main types of economies of scales
- internal (arising within the firm)
- external (due to the industrys growth)
what are diseconomies of scale
occur when firms become too large and inefficient, leads to rising average costs.
increase in LRAC as output increases
These inefficiencies can stem from management challenges, communication issues, or loss of employee motivation.
economies of scale diagram
what are the internal economies of scale
- Risk bearing - firm spread their rsik over a larger range of output
- financial - negotiate lower rates of interest from bank
- managerial - employ specialist manager that monitor and boost productivty of workforce
- technical - gain specialist equipment so boost productivity
- marketing - bulk buy advertising so unit discount and spread cost over larger range of output
- purchasing - firms buy raw materials in bulk so unit discount
Really Fun Mums Try Making Pies
AC decrease = increase in total cost / greater increase in output
what are the external economies of scale
- better transport infrastrucutre - reduce costs as cheaper to transport and access raw materials
- component suppliers move closer - big firm so their interest to be closer so cut the costs of transport
- R&D firms move closer - seen as key business, so use their R&D to boost technology and boost productivity
AC decrease = decrease in total cost / output
what are the diseconomies of scale
- control - more difficult to control workforce, so workers less productive as managers cant control everyone
- communication - harder to communicate so takes time reducing productivity
- coordination - harder to coordinate so less productivity
- motivation - cant motivate everyone employee as workers feel less valueable in large business so less productive
3Cs and an M
AC increase = greater increase in total cost / increase in output
define division of labour
occurs where production is broken down into many separate tasks
