Microeconomics- Production, Costs And Revenue

Question 1

What is production?

Answer 1

The process of converting inputs into outputs

Question 2

What is the difference between short and long term production?

Answer 2

Short term production- at least one factor of production is fixed
Long term production- all factors of production are variable

Question 3

What is average revenue, total revenue and profit?

Answer 3

Total revenue- the amount of money a firm receives from selling it’s goods and services
Average revenue- total revenue ÷ output (price)
Profit- Total revenue-total costs

Question 4

Where is productive efficiency on a PPD and an Average Total Cost (ATC) curve?

Answer 4

On the PPD line is productively efficient
The lowest point on the ATC curve is the most productively efficient

Question 5

What is specialisation?

Answer 5

The production of goods and services where a worker does a narrow range of tasks

Question 6

What is the meaning of Trade, Exchange, Barter, and The Double Coincidence of Wants?

Answer 6

Trade- Buying and selling of goods and services

Exchange- To give something in return for something received, money is a medium of exchange

Barter- the return of goods and services for one another

Double Coincidence of wants- Relies on both parties wanting what the other has.

Question 7

What is money?

Answer 7

Money is a store of value that acts as a medium of exchange. It is also a measure of value.

Question 8

What are economies of scale?

Answer 8

As output increases, a firm’s long run average costs fall.
Economies of scale also act as a barrier to entry in the market for other firms

Question 9

What are diseconomies of scale?

Answer 9

As output increases, a firms long run average costs will eventually increase.

Question 10

What are internal and external economies of scale?

Answer 10

Internal- economies of scale that result from growth in the firm

External- economies of scale that result from growth in the industry

Question 11

What are technical economies of scale?

Answer 11

When a firm can produce goods or services more efficiently through changes in the production process e.g specialisation of labour

Internal economy of scale

Question 12

What are volume economies of scale?

Answer 12

Volume economies: bigger machines can produce proportionally more

Question 13

What are economies of masses resources?

Answer 13

Economies of massed resources: lots of identical machines are cheaper to run

Question 14

What are economies of vertically linked processes?

Answer 14

Economies of vertically linked processes: if a firm links processes in a single plant then it saves times and money

Question 15

What are marketing economies of scale?

Answer 15

Marketing- Advertising is a fixed cost, for larger firms cost per unit is lower as it is more effective

Question 16

What are managerial economies of scale?

Answer 16

Managerial- Specialist managers are more efficient, number of managers isn’t affected by output so management cost per unit is lower

Question 17

What are financial economies of scale?

Answer 17

Financial- Larger firms can borrow more money at lower interest rates

Question 18

What are risk bearing economies of scale?

Answer 18

Risk bearing- Large firms are able to take more risks, they can also diversify into different markets

Question 19

What are scope economies of scale?

Answer 19

Scope- Factors that make it cheaper to produce a range of products together (e.g Aviva have their own legal department)

Question 20

What are managerial/control diseconomies of scale?

Answer 20

Managerial/control and coordination- Large firms may have too many layers of management, making it harder to administrate

Question 21

What are communication diseconomies of scale?

Answer 21

Communication- Staff may feel undervalued, leads to a loss of motivation and efficiency

Question 22

What are motivation diseconomies of scale?

Answer 22

Motivation/cooperation- over specialisation can reduce motivation if the job is tedious. Productivity falls if workers feel deskilled (or occupationally immobile)