production and costs Flashcards
what is production
production covers all those activities which provide the goods and services to satisfy wants
structure of industry (4)
- primary production: raw materials
- secondary production: farming
- tertiary production: teaching
- quaternary production: research
what is specialisation
Specialisation is the use of resources for that productive activity to achieve efficiency
benefits of specialisation (3)
- increased productivity
- reduced unit cost of production
- efficient use of scarce resources
- increases Quality
advantages of division of labour to workers (3)
- increased productivity: increased income
- skills are more easily acquired
- workers can specialise in the job that gives most satisfaction
disadvantages of division of labour to workers (4)
- increased unemployment: less demand for workers
- higher risk of structural unemployment
- interdependence: everyone depends on each other so if the chain breaks it will have wide effects
- boredom of repeating tasks
link between specialisation and exchange (4)
- specialisation cannot exist without exchange
- specialisation depends on a large market for each good
- specialisation can be affected by various economic changes
mobility of factors of production (2)
- occupational mobility concerns the movement of a factor of production from one occupation to another
- geographical mobility describes the movement of a factor from one location to another
short term production meaning
this is when at least one factor of production is fixed
what are fixed costs (4)
- fixed costs do not change as production increases
- fixed costs include rent and bank interest
- fixed costs are shown on a diagram as a horizontal straight line
- if there is no output then fixed costs are the same as total costs
what are variable costs (3)
- variable costs change directly with output
- variable costs include purchases of stock or raw material
- where there is no output there are no variable costs
what is total costs
fixed costs + variable costs
what are average fixed costs (3)
total fixed costs / output
they remain the same in the short run but when output increase they spread over a larger number of units
fixed costs fall continuously
what are average variable costs (2)
total variable costs/output
it initially falls then rises
what are average total costs (2)
Total costs/output
high when output is small
what is marginal costs
how much total costs change when output is changed by one unit
what is the law of diminishing returns/law of variable proportions
it states that if one factor of production is fixed in supply e.g. land in the short run and extra units of another factor e.g. labour are added to it then the extra output gained from the employment of each extra unit of this factor must diminish/go down as the fixed factor becomes overworked
what is the law of diminishing marginal returns
as more units of a variable factor are added to fixed amounts of a fixed factor, the extra amount produced (marginal product) will at first increase then fall
it deals with short run situations
law of increasing and diminishing returns (5)
- the law explains the shape of the average variable, average total and marginal cost curves in the short run only
- as more of a variable factor of production is added to a fixed factor of production then output initially increases but will eventually fall as the fixed factor is overworked
- average total costs fall due to increasing average returns and rise due to diminishing average returns
- marginal costs fall due to increasing marginal returns and rise due to diminishing marginal returns
- in the long run period there are no fixed costs
an example of diminishing returns
if only one member of staff is employed in a salon with 4 booths then the number of haircuts per output will be lower than it could be as 3 booths are unused
if more staff is employed then more booths will be used and output should increase
if you continue to employee more staff there will nor be enough booths meaning staff is over supplied
what are the short run shut down conditions (6)
if the price a firm charges for a product is less than the average cost of total production then they are losing money
fixed cost must be paid regardless of output
a firm will continue to produce in the short term as long as the price charged is greater than the average variable costs
staying open can ensure customer loyalty and keep workers from leaving as changes are being made
if the price is less than average variable costs the business produces zero closes
if the long run a firm must cover all costs
what is the long run time period
the long run is the time period when all factors of production are variable so there are no fixed costs
what are economies of scale
only occur in the long run are are the advantages of large scale production resulting in lower average unit costs
difference between internal economies of scale and external
external economies of scale: advantages business gain as a result of the growth of an industry
internal economies of scale: advantages that arise as a result of the growth of a business
