Production, costs and revenue Flashcards
Define production.
Refers to the total output of goods and services by an individual, firm or country - it also describes the process of converting inputs into outputs.
Define productivity.
A measurement of the rate of production by one, or all, of the various factors of production - how efficient an individual worker, firm or country is at generating output.
How is productivity measured?
total output per period of time/number of units of factor of production
Define specialisation.
The concentration of a worker, firm, region or country to produce a narrow range of goods and services
What does specialisation require to be successful?
Trade.
Give examples of specialisation.
- An individual worker specialising as tax accountant
- An individual worker specialising in accountancy
- An individual region specialising in investment banking, e.g. the City of London
- An individual country specialising in the provision of financial services, e.g. the UK
Define the Division of Labour.
Specialisation of the workforce.
What did Adam Smith argue about specialisation and the division of labour, in The Wealth of Nations in 1776?
- He argued that without specialisation, one worker making pins from start to finish might make 20 pins per day, while ten workers specialising in the individual tasks involved might be able to make 48,000 pins per day
Specialisation of the division of labour are only viable if…
an efficient system of exchange exists so that, for example, a tax accountant is able to exchange their services for payment so they can buy food and pay their rent.
Throughout most of history, and still in some parts of the world today, exchange has relied on a system known as…
barter - involves the exchange of goods and services for other goods and services
What are some of the benefits of specialisation and division of labour?
- Repetition of a limited range of activities can increase skill and aptitude leading to a worker becoming an expert
- Reduced time spent moving between different task or workstations means increased productivity
- As tasks are broken up into smaller ones, it becomes efficient to use specialist machinery
- Division of labour allows people to work to their natural strengths, for example physical strength, technical skill or the ability to communicate
Define the short run.
The period of time in which at least one factor of production is fixed in terms of the number of units a firm can use - this helps to define its capacity, or scale of output.
What are the most likely factors of production to be fixed in the short run?
Land, or capital equipment, while access to labour tends to be more flexible, though not entirely.
Why type of costs will firms have in the short run?
Firms will have some fixed costs of production for which they must pay even if they do not produce any output, along with variable costs of production that change with the level of output.
Define the long run.
The period of time over which a firm can vary all the factors of production its uses, and thus may increase or reduce its scale of output.
