Micro 4 - Productivity, a firm's costs and the supply curve Flashcards
What does production do?
> Production converts inputs, or services of factors of production such as capital and labour, into the final output.
Division of labour - definition
> Where production is broken down into many separate tasks.
Division of labour - advantages
- Division of labour raises output per person as people become more efficient through constant repetition of a task.
- This gain in productivity helps to lower cost per unit and ought to lead to lower prices for consumers.
Division of labour - disadvantages
- Unrewarding, repetitive work lowers motivation and productivity, which can lead to a decrease in pride of work and therefore, lower quality.
- Dissatisfied workers are less punctual and there are higher rates of absenteeism.
- May choose to move to a less boring job which leads to higher worker turnover.
- Little training so can’t find another job = structural unemployment.
- Mass-produced, standardised goods lack variety for customers.
What distinction is essential to economics?
> The distinction between short and long run analysis.
Long run - definition
> A time period in which all the factors of production are variable, so a firm can expand its’ capacity.
Short run - definition
> A time period in which at least one of the factors of production is fixed.
Traditional model for short-run = fixed capital, flexible labour.
Adam Smith: Specialisation and division of labour.
>Why does productivity increase?
- An increase of dexterity in every particular worker.
- A saving of the time which is commonly lost in passing from one species of work to another.
- The invention of a great number of machines to facilitate and abridge labour.
Why would employers employ more labourers?
> If one more worker increases output by less than average, productivity falls.
Only employ if extra output cover the wage.
When does marginal product cross productivity?
> Marginal product cross productivity at productivity’s highest point.
Increasing marginal returns - definition
> The phenomenon whereby increasing one variable input (usually labour) leads to increasing marginal product (and productivity) of that input.
E.g. as more staff are employed, each new member of staff leads to an increase in productivity.
Diminishing marginal returns - definition
> The phenomenon whereby additional staff employed lead to a decline in marginal product of labour and a decline in the marginal product and productivity of input.
E.g. as new members of staff are employed, each new member causes a fall in productivity.
Productively efficient - definition
> Where the quantity produced per unit is maximised for a firm.
Or where factor inputs required for each unit produced are minimised.
Returns to scale - definition
> Considers how an increase in a number of factors of production will affect output in the long run.
E.g. a 10% increase in both labour and capital inputs may yield a 15% increase in output showing increasing returns to scale.
Firms - when should they produce more?
> When a firm considers whether to produce a good and how many units to produce, they need to know how much it will cost per unit to produce the good in different quantities in addition to how many units they are likely to be able to sell at a range of prices.
