PRODUCTION COST + REVENUE- MICROECONOMICS Flashcards
Production
Converts inputs or factor services into outputs of goods and services
Short-run production
Occurs when a firm adds variable factors of production to fixed factors to increase spare capacity to cope with a demand rise
Long-run production
Occurs when a firm change the scale of all the factors of production, permanently expanding production capacity (capital widening)
Productivity
Output per unit of input
Labour productivity
Output per worker
Specialisation
A worker only performing one task or a narrow range of tasks, also different firms focusing on one type of good or service
Division of Labour
The separation of the production process into a number of tasks, with each task performed by a separate person or group of persons
Benefits of specialisation
-Time saved through not switching job
-More and better machinery can be employed (capital widening)
-‘Practice makes perfect,’ workers become more efficient and productive
Exchange
To give something in return for something else recieved, money is a medium
Barter
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
Short run
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
Long run
The time period where no factors of production are fixed and all factors can be varied
Costs
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
Economies of scale
As output increases LRAC falls
Diseconomies of scale
As output increases LRAC increaees
Technical economies of scale
Cost saving generated through changes to the ‘productive process’ as the scale of production and level of output increase
Types of technical economies of scale
Indivisibilities- (production minimum for efficiency)
Spreading of R+D costs
Volume economies
Massed resources
Vertically linked processes
Other types of economies of scale
Managerial
Marketing
Financial or ‘capital raising’
Risk-bearing
Economies of scope
External economy of scale
Cost saving resulting from the growth of the industry or market of which the firm is a part
Diseconomies of scale
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
Average revenue
Total revenue / output
Single product firm average revenue= price
