Paper 1 4. Production costs and revenues Flashcards
Automation:
Automatic control; the process by which machines control other machines
Average cost:
Total production cost divided by total output (cost per unit of output).
Average revenue:
Total revenue divided by total output (revenue per unit of output)
Capital productivity:
Output per unit of capital.
Constant returns to scale
When output increases by an equal proportion the increase in
inputs
Decreasing returns to scale
When output increases by a smaller proportion than the
increase in inputs
Diseconomies of scale:
When long-run average costs rise as output rises.
Division of labour:
Different workers performing different tasks in a good’s/services’
production, specialising to an extent.
Economies of scope:
When it is cheaper to make a range of products
Economy of scale:
When long-run average costs fall as output rises.
External economy of scale:
: Firms saving resulting from growth of the industry a firm is part
of.
Fixed cost:
Costs of production that do not vary with output, only in the short run.
Increasing returns to scale:
When output increases by a larger proportion than the
increase in inputs
Internal economy of scale:
Firms saving resulting from growth of the firm itself
Labour productivity:
Output per worker.
Law of diminishing returns:
: By continually adding variable factors atop fixed factors,
eventually both average and marginal returns to the fixed factor fal
Long run:
Time period in which none of the factors of production are fixed, and all can be
varied.
Long-run average cost:
Long-run total cost per unit of output
Long-run production:
When a firm changes the scale of all factors of production.
Mechanisation:
When a firm transfers from becoming more labour intensive to becoming
more capital intensive
Minimum efficient scale (MES):
The lowest level of output at which average costs are
minimised. Dependent on the market structure as well as barriers to entry
Normal profit:
: Total revenue equals total costs; the minimum profit required to keep a firm
operating in an industry
Operating costs:
Same as variable costs
Overheads:
Same as fixed costs
Production:
A set of processes that converts inputs into outputs.
Productive efficiency:
Minimised average total cost.
Productivity:
Output per unit of input.
Profit:
Total revenue subtract total costs.
Rate of return:
Income received from an investment
Returns to scale:
The scale by which a firm’s output changes as the scale of all inputs are
altered
Short run:
Time period in which at least one of the factors of production are fixed and cannot
be varied.
Specialisation:
A worker only performing a specific task or a small range of tasks.
Sunk cost:
Non-recoverable costs of entering a market
Supernormal (abnormal) profit:
Any level of profit over and above normal profit
Technical economy of scale:
Cost saving through changing the production process.
Total cost:
Total fixed cost added to total variable cost.
Total revenue:
Price of each good, multiplied by quantity sold.
Variable cost:
Costs incurred when paying for the variable factors of production.
X-inefficiency:
When a firm lacks the incentive to control costs. This causes the average cost of production to be higher than necessary.
