product cost and revenue

Question 1

how is productivity calculated

Answer 1

calculated by output per worker per period of timer.

Question 2

benefits of being more productive

Answer 2

Being more productive means the same input, such as the number of workers,
produces more output, over the same period of time.

Question 3

problems with being less productive

Answer 3

Being less productive requires a larger input to produce the same quantity of output.

Question 4

how do you increase productivity

Answer 4

Productivity can be increased by training workers or using more advanced capital
machinery

Question 5

what does productivity do for average cost per unit

Answer 5

Being more productive also lowers average costs per unit of output.

Question 6

specialisation

Answer 6

Being more productive also lowers average costs per unit of output. #
Firms can then take
advantage of increased efficiency and lower average costs of production.

Question 7

advantages of specialisation

Answer 7

Higher output and potentially higher quality, since production focusses on
what people and businesses are best at

There could be a greater variety of goods and services produced.

There are more opportunities for economies of scale, so the size of the
market increases.

There is more competition and this gives an incentive for firms to lower their
costs, which helps to keep prices down.

Question 8

disadvantages of specialisation

Answer 8

Work becomes repetitive, which could lower the motivation of workers,
potentially affecting quality and productivity. Workers could become
dissatisfied

There could be more structural unemployment, since skills might not be
transferable, especially because workers have focussed on one task for so
long.

By producing a lot of one type of good through specialisation, variety could in
fact decrease for consumers.

There could be higher worker turnover for firms, which means employees
become dissatisfied with their jobs and leave regularly.

Question 9

comparative advantage

Answer 9

which means they can
produce a good at a lower opportunity cost to another.

Question 10

Absolute advantage

Answer 10

e occurs when a country can produce more of a good with the
same factor inputs.

Question 11

advantages of country specialisation

Answer 11

Greater world output, so there is a gain in economic welfare.

Lower average costs, since the market becomes more competitive.

There is an increased supply of goods to choose from.

There is an outward shift in the PPF curve.

Question 12

disadvantages of country specialisation

Answer 12

Less developed countries might use up their non-renewable resources too
quickly, so they might run out.

Countries could become over-dependent on the export of one commodity,
such as wheat. If there are poor weather conditions, or the price falls, then
the economy would suffer.

Question 13

A medium of exchange:

Answer 13

without money, transactions were conducted
through bartering. Goods and services were traded with other goods and
services, but people did not always get exactly what they wanted or needed.
The goods and services exchanged were not always of the same value, which

Question 14

a double coincidence of wants

Answer 14

both parties have to want the good the other party
offer. Using money eliminates this problem.

Question 15

A measure of value (unit of account):

Answer 15

Money provides a means to measure
the relative values of different goods and services. For example, a piece of
jewellery might be considered more valuable than a table because of the
relative price, measured by money. Money also puts a value on labour.

Question 16

A store of value

Answer 16

Money has to hold its value to be used for payment. It can
be kept for a long time without expiring. However, the quantity of goods and
services that can be bought with money fluctuates slightly with the forces of
supply and demand.

Question 17

A method of deferred payment:

Answer 17

Money can allow for debts to be created.
People can therefore pay for things without having money in the present,
and can pay for it later. This relies on money storing its value.

Question 18

The difference between the short run and the long run

Answer 18

in the short run, the scale of production is fixed (there is at least one fixed cost). For
firms, the quantity of labour might be flexible, whilst the quantity of capital is fixed.
In the long run, the scale of production is flexible and can be changed. All costs are
variable.

Question 19

short run

Answer 19

a period where at least one input is fixed, limiting a firm’s ability to adjust its production capacity

Question 20

the long run

Answer 20

over a significant period of time in the future, usually when making a decision or considering the consequences of an action

Question 21

marginal returns

Answer 21

, is the extra output derived per extra
unit of the factor employed. For labour, it is the extra output per unit of labour
employed. For example, employing more staff in a small shop will make it overcrowded and the extra output per unit of labour falls

Question 22

The average return

Answer 22

is the output per unit of input. This is output per
worker over a period of time.

Question 23

The total return of

Answer 23

a factor is the total output produced by a number of units of
factors (e.g. labour) over a period of time. The amount of capital is fixed.

Question 24

The law of diminishing returns

Answer 24

Diminishing returns only occur in the short run.

The variable factor could be increased in the short run. For example, firms might
employ more labour. Over time, the labour will become less productive, so the
marginal return of the labour falls. An extra unit of labour adds less to the total
output than the unit of labour before.

Therefore, total output still rises, but it increases at a slower rate.
This is linked to how productive labour is.
The law assumes that firms have fixed factor resources in the short run and that the
state of technology remains constant. However, the rise of things like out-sourcing
means that firms can cut their costs and their production can be flexible.

Question 25

Fixed costs

Answer 25

costs which do not vary with output. For example, rents, advertising and capital goods are fixed costs. They are indirect.

Question 26

Variable costs

Answer 26

change with output. They are direct costs. For example, the cost of raw materials increases as output increases.

Question 27

The total cost

Answer 27

is the cost to produce a given level of output

Question 28

formula for total costs

Answer 28

Total costs = total variable costs + total fixed costs

Question 29

Average costs

Answer 29

is the cost per unit

Question 30

formula of average cost

Answer 30

Average costs = total costs / quantity produced

Question 31

marginal cost

Answer 31

is the cost of producing one extra unit of output. According to the law of diminishing returns, after a point, marginal costs rise as output increases

Question 32

what shape is the short run average total cost curve

Answer 32

U shaped due to diminishing returns. because the factors of production are fixed. At one point, employing more resources will be less productive consists of the brain and the spinal cord, and the peripheral nervous system which consists of nerve cells that transmit information to and from the CNS.

Question 33

what is the long run average cost curve

Answer 33

curved. The first half is due to economies of scale. the diseconomies of scale of the second half of the curve. the point of lowest long run average costs the most efficient level of output.

Question 34

How factor prices and productivity affect firms’ costs of production and their choice of factor inputs

Answer 34

If factor inputs become more productive, firms can produce more output with a smaller input. This results in lower unit costs of production. As the average cost per unit of one factor input rises, such as labour, firms are likely to switch to cheaper (and generally more productive) factor inputs, such as capital.

Question 35

internal economies of scale

Answer 35

These occur when a firm becomes larger. Average costs of production fall as output increases.

Question 36

mnemonic for economies of economies of scale

Answer 36

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Question 37

whats does the R stand for in the economies of scale mnemonic

Answer 37

Risk-bearing- When a firm becomes larger, they can expand their production range. Therefore, they can spread the cost of uncertainty. If one part is not successful, they have other parts to fall back on.

Question 38

whats does the F stand for in the economies of scale mnemonic

Answer 38

Financial: - Banks are willing to lend loans more cheaply to larger firms, because they are deemed less risky. Therefore, larger firms can take advantage of cheaper credit.

Question 39

whats does the M stand for in the economies of scale mnemonic

Answer 39

Managerial - Larger firms are more able to specialise and divide their labour. They can employ specialist managers and supervisors, which lowers average costs.

Question 40

whats does the T stand for in the economies of scale mnemonic

Answer 40

Technological - Larger firms can afford to invest in more advanced and productive machinery and capital, which will lower their average costs.

Question 41

whats does the M stand for in the economies of scale mnemonic

Answer 41

Marketing- Larger firms can divide their marketing budgets across larger outputs, so the average cost of advertising per unit is less than that of a smaller firm

Question 42

whats does the P stand for in the economies of scale mnemonic

Answer 42

Purchasing- Larger firms can bulk-buy, which means each unit will cost them less. For example, supermarkets have more buying power from farmers than corner shops, so they can negotiate better deals.

Question 43

External economies of scale:

Answer 43

These occur within the industry. For example, local roads might be improved, so transport costs for the local industries will fall. Also, there might be more training facilities or more research and development, which will also lower average costs for firms in the local area.

Question 44

Diseconomies of scale:

Answer 44

These occur when output passes a certain point and average costs start to increase per extra unit of output produced. Examples include: Control: It becomes harder to monitor how productive the workforce is, as the firm becomes larger. Coordination: It is harder and complicated to coordination every worker, when there are thousands of employees. Communication: Workers may start to feel alienated and excluded as the firm grows. This could lead to falls in productivity and increases in average costs, as they lose their motivation.

Question 45

what's The relationship between returns to scale and economies or diseconomies of scale

Answer 45

Returns to scale increases when the output increases by a greater proportion to the increase in inputs. For example, if input doubles, and output quadruples, there is said to be increasing returns to scale. This occurs where there are economies of scale and factor inputs become more productive.

Question 46

Total revenue

Answer 46

calculated by price times quantity sold. This is the revenue received from the sale of a given level of output.

Question 47

Average revenue (AR)

Answer 47

) is the average receipt per unit. This is calculated by TR / quantity sold. In other words, this is the price each unit is sold for.

Question 48

Marginal revenue

Answer 48

is the extra revenue earned from the sale of one extra unit. It is the difference between total revenue at different levels of output.

Question 49

what is the AR curve

Answer 49

is the firm’s demand curve. This is because the average revenue curve is the price of the good.

Question 50

The relationship between average revenue and marginal revenue

Answer 50

When demand is perfectly elastic, marginal revenue = average revenue.

Question 51

The relationship between marginal revenue and total revenue

Answer 51

Marginal revenue measures the change in total revenue with respect to changes in the amount of goods and services sold. Marginal revenue is calculated by the change in total revenue divided by the change in quantity sold.

Question 52

profit

Answer 52

Profit is the difference between total revenue and total costs.

Question 53

Normal profit

Answer 53

: Normal profit is the minimum reward required to keep entrepreneurs supplying their enterprise. It covers the opportunity cost of investing funds into the firm and not elsewhere. This is when total revenue = total costs (TR = TC)

Question 54

Supernormal profit:

Answer 54

Supernormal profit (also called abnormal or economic profit) is the profit above normal profit. This exceeds the value of opportunity cost of investing funds into the firm. This is when TR > TC

Question 55

The role of profit in a market economy

Answer 55

In a free market economy, profit is the reward that entrepreneurs yield when they take risks and make investments. An entrepreneur wants to avoid loss and gain profit, which makes them want to innovate, so they can reduce their production costs and improve the quality of their products. Entrepreneurs seek to maximise their profits.

Question 56

retained Profits

Answer 56

so they are kept within the firm and not given to shareholders as dividends. This can be a source of finance for firms if they choose to make an investment. It helps them avoid the costs of interest payments if they borrow money.

Question 57

Scarce economic resource

Answer 57

generally flow where rewards to investment are higher. The factors of production are used in markets where the rate of return is higher.

Question 58

Invention

Answer 58

is the process of creating a new product or a new way to make a product.

Question 59

Innovation

Answer 59

is the act of improving or contributing to existing products.

Question 60

benefit of technological change

Answer 60

can result in improvements in efficiency and productivity, which could lower costs of production for firms. The quality and quantity of goods and services produced might improve.

Question 61

Technological change can influence the structure of markets

Answer 61

Monopolies do not have an incentive to innovate, since they have no competition. This means they are often inefficient and their costs are higher than they could be. Oligopolies tend to have more of an incentive to innovate, since they are earning supernormal profits and are trying to get ahead of their competitors. This means that technological change is quite fast in oligopolies.