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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
What are the disadvantages of an increase in production?
- 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
26
How is productivity and production linked?
Productivity is a measure of how efficiently the factors of production are used
27
What is productivity measured as?
Output per unit of input
28
How can productivity increase?
- 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
What will higher productivity result in?
- Lower average costs/ increased economies of scale - Increased profits --> better training and more investment - Increased total output of the economy - More export
30
Why are lower average costs/ increased economies of scale important?
Firms become more competitive and can compete better both at home and in world markets
31
Why are increased profits (leading to better training and more investment) important?
Able to attract the best workers. Can pay for research and development of products
32
Why are increased total output of the economy important?
Increases employment, wages and tax revenue
33
Why are more exports important?
Greater economic growth
34
What are the costs of productivity?
- Unemployment and rise in government expenditure of welfare benefits - Fall in GDP or slower economic growth
35
What is the cause of unemployment?
Workers replaced by machines and cannot find other employment
36
What is the cause of a fall in GDP/ slower economic growth?
Greater international competitiveness leading to retaliation by countries against rising exports.
37
What does total cost include?
Total fixed costs (marketing) and variable costs (raw materials)
38
How do you calculate the total cost?
Total fixed costs (TFC) + total variable costs (TVC)
39
What does a fall in average costs lead to/ show?
Leads to economies of scale and shows the firm is becoming more efficient
40
How do you calculate the average cost?
total cost (TC) / quantity (Q)
41
How do you calculate total revenue?
price of the product (P) X quantity sold (Q)
42
How do you calculate the average revenue?
total revenue (TR) / quantity (Q)
43
What is average revenue always equal/ the same as?
The price
44
What is profit?
When a firm gains more revenue than it pays out in costs. TR > TC
45
What is loss?
When a firm's revenue is less than its costs. TR < TC
46
How do you calculate profit/loss?
total revenue (TR) - total cost (TC)
47
What is the importance of costs for producers
- 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
What is the importance of revenue for producers
- 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
What is the importance of profit for producers
- 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
What is the importance of loss for producers
- 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
Types of internal economies of scale
Division of labour, financial, increased dimensions, managerial, marketing, purchasing/ bulk buying, risk-bearing, research and development, technical.
52
Why is division of labour (an example of internal economy of scale) important?
Dividing work up into small specialist areas to increase speed
53
Why is financial (an example of internal economy of scale) important?
Larger firms can borrow money at lower interest rates
54
Why is increased dimensions (an example of internal economy of scale) important?
Size (volume) increases faster than costs
55
Why is managerial (an example of internal economy of scale) important?
Larger firms can employ more specialists, therefore increasing efficiency
56
Why is marketing (an example of internal economy of scale) important?
Larger firms can promote more products with their budgetW
57
Why is purchasing/ bulk buying (an example of an internal economy of scale) important?
Buying large quantities at a large time leads to discounts
58
Why is risk-bearing (an example of an internal economy of scale) important?
Large firms offer a wide range of products incase one fails
59
Why is research and development (an example of an internal economy of scale) important?
Larger firms can afford to have their own R&D department
60
Why is technical (an example of internal economy of scale) important?
Larger firms can afford more and better capital equipment
61
Types of external economies of scale
Concentration of firms, education and training facilities, location, transport
62
Why is concentration of firms (an example of external economy of scale) important?
Suppliers of parts may locate near the main producer
63
Why is education and training facilites (an example of external economy of scale) important?
Local university may run course to suit the needs of firms
64
Why is location (an example of external economy of scale) important?
An area with a good reputation may attract more firms
65
Why is transport (an example of an external economy of scale) important?
Better transport links will help reduce costs

(Micro) Economics / Paper 1 (13 decks)

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