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(Micro) Economics / Paper 1 > Production > Flashcards

Production Flashcards

1
Q

Define profit

A

The amount of money a producer has left after all the costs have been made (when total revenue is greater than total cost)

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2
Q

Define production

A

The total output of goods and services produced by a firm or an industry in a given period of time

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3
Q

Define productivity

A

The output per unit of input

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4
Q

Define total cost

A

All the costs of the firms added together

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5
Q

Define average cost

A

The cost of producing a unit of output

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6
Q

Define total revenue

A

The total income of the firm from the sale of its goods and services

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7
Q

Define average revenue

A

The revenue per unit sold

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8
Q

Define a loss

A

When a firm’s revenue is less than its cost

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9
Q

Define economies of scale

A

Where an increase in the scale of production results in a fall in the average costs of production

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10
Q

What is the role of producers?

A
  • May be small (an individual) or very large (a multinational corporation)
  • The supply part of supply and demand
  • Aim to make profit
  • Employ workers and pay wages
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11
Q

Examples of producers of non-market goods

A

Cleaning, cooking, childminding

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12
Q

How many hours are producers of non-market goods contracted to (e.g. part time, full time etc)?

A

Part time

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13
Q

Examples of self-employed jobs

A

Plumbers, electricians

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14
Q

How many hours are self-employed workers contracted to? (e.g. part time, full time etc)

A

Self employed - keep all of the profits

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15
Q

The role of firms (as producers)

A
  • May sell to: local area, country as a whole, export
  • Small firms are often in a competitive market
  • Large firms may be monopolies or oligopolies
  • Larger producers can exercise power over market
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16
Q

What types of goods and services do the government produce?

A

Police, education, health, railways

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17
Q

Why do the government produce defence (e.g. police)?

A

These must be supplied to all or to none

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18
Q

Why is defence (police etc) apart of the private sector?

A

They are unwilling to produce as people would not pay

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19
Q

Why do the government produce education and health?

A

They decided that needs ti be available for free to everyone

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20
Q

Why are education and health apart of the private sector?

A

So they can supply to those willing to pay

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21
Q

Why do the government produce coal, railways, telecoms etc?

A

Decided that these would be better ran in the interest of people by the state.

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22
Q

Why are coal, railways, telecoms etc apart of the private sector?

A

So they can provide all and since privatisation this has been done

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23
Q

Is production and productivity the same?

A

No. Production is about total output whereas productivity is output per unit of input

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24
Q

What are the advantages of an increase in production?

A
  • Increase in employment
  • Rise in standard of living for consumers as more to buy
  • Increase in profits
  • Can gain larger economies of scale
  • Individual firms may gain greater market share
  • The country will have economic growth
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25
Q

What are the disadvantages of an increase in production?

A
  • Increase of production may be the result of new technology and workers replaced by machines
  • Workers replaced by machines will have a lower standard of living
  • Average costs may rise leading to diseconomies of scale
  • Other firms will lose market share
  • Could lead to environmental problems
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26
Q

How is productivity and production linked?

A

Productivity is a measure of how efficiently the factors of production are used

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27
Q

What is productivity measured as?

A

Output per unit of input

28
Q

How can productivity increase?

A
  • By workers specialising
  • Through improving the skills of workers by education and training
  • Through greater investment in new technology
  • By increasing the amount of capital equipment
29
Q

What will higher productivity result in?

A
  • Lower average costs/ increased economies of scale
  • Increased profits –> better training and more investment
  • Increased total output of the economy
  • More export
30
Q

Why are lower average costs/ increased economies of scale important?

A

Firms become more competitive and can compete better both at home and in world markets

31
Q

Why are increased profits (leading to better training and more investment) important?

A

Able to attract the best workers. Can pay for research and development of products

32
Q

Why are increased total output of the economy important?

A

Increases employment, wages and tax revenue

33
Q

Why are more exports important?

A

Greater economic growth

34
Q

What are the costs of productivity?

A
  • Unemployment and rise in government expenditure of welfare benefits
  • Fall in GDP or slower economic growth
35
Q

What is the cause of unemployment?

A

Workers replaced by machines and cannot find other employment

36
Q

What is the cause of a fall in GDP/ slower economic growth?

A

Greater international competitiveness leading to retaliation by countries against rising exports.

37
Q

What does total cost include?

A

Total fixed costs (marketing) and variable costs (raw materials)

38
Q

How do you calculate the total cost?

A

Total fixed costs (TFC) + total variable costs (TVC)

39
Q

What does a fall in average costs lead to/ show?

A

Leads to economies of scale and shows the firm is becoming more efficient

40
Q

How do you calculate the average cost?

A

total cost (TC) / quantity (Q)

41
Q

How do you calculate total revenue?

A

price of the product (P) X quantity sold (Q)

42
Q

How do you calculate the average revenue?

A

total revenue (TR) / quantity (Q)

43
Q

What is average revenue always equal/ the same as?

A

The price

44
Q

What is profit?

A

When a firm gains more revenue than it pays out in costs. TR > TC

45
Q

What is loss?

A

When a firm’s revenue is less than its costs. TR < TC

46
Q

How do you calculate profit/loss?

A

total revenue (TR) - total cost (TC)

47
Q

What is the importance of costs for producers

A
  • Costs rise as output increases leading to an upward sloping supply curve
  • Firms control costs to try and make a (bigger) profit
  • If costs fall, firms can supply more at ever price
48
Q

What is the importance of revenue for producers

A
  • Without sufficient revenue, a firm will make a loss and go out of business
  • Revenue growth, leading to a greater profit, encourages investment in the firm leading to expansion
  • A steady level of revenue allows firms to gain loans and favourable interest rate on overdrafts
  • Creates confidence in firms, workers remain and suppliers will supply more
49
Q

What is the importance of profit for producers

A
  • Acts as a signal to resources to move to the firm
  • Provides money for investment
  • Offers a measure of the success of investments and encourages more in the future
50
Q

What is the importance of loss for producers

A
  • A continuous loss will result in a firm closing down.
  • In the short run, a loss can be covered by using money previously saved or by loans
  • Acts as a signal to resource to move away from the firm
51
Q

Types of internal economies of scale

A

Division of labour, financial, increased dimensions, managerial, marketing, purchasing/ bulk buying, risk-bearing, research and development, technical.

52
Q

Why is division of labour (an example of internal economy of scale) important?

A

Dividing work up into small specialist areas to increase speed

53
Q

Why is financial (an example of internal economy of scale)
important?

A

Larger firms can borrow money at lower interest rates

54
Q

Why is increased dimensions (an example of internal economy of scale) important?

A

Size (volume) increases faster than costs

55
Q

Why is managerial (an example of internal economy of scale) important?

A

Larger firms can employ more specialists, therefore increasing efficiency

56
Q

Why is marketing (an example of internal economy of scale) important?

A

Larger firms can promote more products with their budgetW

57
Q

Why is purchasing/ bulk buying (an example of an internal economy of scale) important?

A

Buying large quantities at a large time leads to discounts

58
Q

Why is risk-bearing (an example of an internal economy of scale)
important?

A

Large firms offer a wide range of products incase one fails

59
Q

Why is research and development (an example of an internal economy of scale) important?

A

Larger firms can afford to have their own R&D department

60
Q

Why is technical (an example of internal economy of scale) important?

A

Larger firms can afford more and better capital equipment

61
Q

Types of external economies of scale

A

Concentration of firms, education and training facilities, location, transport

62
Q

Why is concentration of firms (an example of external economy of scale) important?

A

Suppliers of parts may locate near the main producer

63
Q

Why is education and training facilites (an example of external economy of scale) important?

A

Local university may run course to suit the needs of firms

64
Q

Why is location (an example of external economy of scale) important?

A

An area with a good reputation may attract more firms

65
Q

Why is transport (an example of an external economy of scale) important?

A

Better transport links will help reduce costs

(Micro) Economics / Paper 1 (13 decks)

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