PRODUCTION COST + REVENUE- MICROECONOMICS

Question 1

Production

Answer 1

Converts inputs or factor services into outputs of goods and services

Question 2

Short-run production

Answer 2

Occurs when a firm adds variable factors of production to fixed factors to increase spare capacity to cope with a demand rise

Question 3

Long-run production

Answer 3

Occurs when a firm change the scale of all the factors of production, permanently expanding production capacity (capital widening)

Question 4

Productivity

Answer 4

Output per unit of input

Question 5

Labour productivity

Answer 5

Output per worker

Question 6

Specialisation

Answer 6

A worker only performing one task or a narrow range of tasks, also different firms focusing on one type of good or service

Question 7

Division of Labour

Answer 7

The separation of the production process into a number of tasks, with each task performed by a separate person or group of persons

Question 8

Benefits of specialisation

Answer 8

-Time saved through not switching job
-More and better machinery can be employed (capital widening)
-‘Practice makes perfect,’ workers become more efficient and productive

Question 9

Exchange

Answer 9

To give something in return for something else recieved, money is a medium

Question 10

Barter

Answer 10

Trading one specialisation of labour for another, no financial denomination needed
-However reliant on a ‘double confidence of wants’ blacksmith wants the crops of a farmer and the farmer wants the services of the blacksmith

Question 11

Short run

Answer 11

The time period in which at least one factor of production is fixed and cannot be varied, therefore in order to increase supply is by adding variable factors

Question 12

Long run

Answer 12

The time period where no factors of production are fixed and all factors can be varied

Question 13

Costs

Answer 13

Fixed- Costs of production which, in the short run, does not change with output
Variable- Costs of production which changes with the amount that is produced, even in the short run
Total- whole costs (F + V) of producing at a particular level of output
Average- total costs / output

Question 14

Economies of scale

Answer 14

As output increases LRAC falls

Question 15

Diseconomies of scale

Answer 15

As output increases LRAC increaees

Question 16

Technical economies of scale

Answer 16

Cost saving generated through changes to the ‘productive process’ as the scale of production and level of output increase

Question 17

Types of technical economies of scale

Answer 17

Indivisibilities- (production minimum for efficiency)
Spreading of R+D costs
Volume economies
Massed resources
Vertically linked processes

Question 18

Other types of economies of scale

Answer 18

Managerial
Marketing
Financial or ‘capital raising’
Risk-bearing
Economies of scope

Question 19

External economy of scale

Answer 19

Cost saving resulting from the growth of the industry or market of which the firm is a part

Question 20

Diseconomies of scale

Answer 20

Managerial- deregulation of administrative functions
Communication- too many layers (chain of command) creates a time lag making instructions inefficient
Motivational- large firms makes it difficult to satisfy all workers, loss of incentive to work hard

Question 21

Average revenue

Answer 21

Total revenue / output

Single product firm average revenue= price