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2-Economics- Micro > Production, Costs And Revenue > Flashcards

Production, Costs And Revenue Flashcards

1
Q

Specialisation

A

Conc by an individual, firm, market or country on a particular product or task

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2
Q

Benefits of agglamationition

A

Groupss or firms producing complementary gods to locate near one another

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3
Q

Division of labour

A

Occurs where production is roken down into manys eperate tasks
Increasing output/person- become proficient throggh constant repition- learning by doing
Growth in productivity , decrase supply cost/unit
Lower prices- gains econ welfare

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4
Q

Fixed costs

A

Business expense that doesnt vary directl6y with level of output
Higher fc- higher output needed to bring down
Examples- rental cots, fixed salery, insurance
Distrussted amobng labbour output

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5
Q

Variable costs

A

Costs that change as output changes
Increase sr output, causes increase total vairbbale cost
Eg - wage costs, raw materials, apckagig

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6
Q

Av fixed cost

A

Total cost over output

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7
Q

Marginal cost

A

Change in total cost/change in output

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8
Q

Law of diminishing returns

A

If ne factor of production- eg land- is increasing whilst anohter factor is fixed- the production of the variabel will eventually decrease
Occurs when marginal product of labour starts to fall
Total output will be icreasing ata a decreasing rate

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9
Q

Short rn

A

At least 9one factor of production is fixed
Usually this is capital
Length of sr varies bby indsutry

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10
Q

Long run

A

All factors of production are variabble and the sacle of production can also change allowing the firms to benefit from economies of scale

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11
Q

Productivity

A

Output/unit of input

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12
Q

Labbour productivity

A

Output/worker

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13
Q

Capital productivity

A

Output/unit of capital

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14
Q

Prooductivity gap

A

Diff bbetween labbour productivity in the uk and other developed economies

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15
Q

Examples of productivity gap

A

Early 1990s and 2999s- rover car group struggle to survive in th euk carindustry- rover unabbbel to compete with japanese nissan who had high labbbour productiv9ity compared to rover- invested n state of art factory in sunderland

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16
Q

Key adv specialisation

A

Higher labbbour productivity and bbbusiness profits
Learning bby doing- increases output/hour
Increase productivity decreases unit output of supplu
Increase productive- inscrease profits

Specialisation createssurplus output traded internationaly
Comparative adv
B. Bbusiness/country specialise in own sphere
Lower pirces, increases real income, decrease prices, increase purchasing power, increased productiion increases wages

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17
Q

Disadv specialisation

A

Unrewarding repetitive work requiring lower skill, lower motivation and productivity
Workers lwess pride in work
Disatisfieed worker, rate of abbsenteeism increases
Increase worker turnover due to bboring jobb
Structural unemployment/occupational imomobbility- little training
Mass productivon standardised goods loses variety for consumers

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18
Q

Factors affecting labbour productivity

A

Advances in production technology
Investment in apprenticeships.training to lower labour structure
Specialisation within ba bbbusiness
Higher bbusiness investment as new capital improves
Q of manufacturing in a bbusiness
Highe quanity national infrasturcture- inc transport

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19
Q

Key functions of money

A

Medium of excange
Store of value
Unit of account
Standard of deferred oayment

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20
Q

Medium of exchange

A

Moneyy. Allows g and s to be raded without need for a barter sustem- rely on doubble coincidence of vbalues bbetween two people involved in an economy

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21
Q

Store of value

A

Only assest whose ‘value’ can be used now or in the future
Peeople can choose to save or spend

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22
Q

Unit of account

A

Value of items can be compared
Allows value to be expressed

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23
Q

Standard of deferrral payment

A

Value of a debbbt
Borrow today, pay back later in a time acceptabble to the person who made the loan

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24
Q

Economies of scale

A

Unit cost adv from expanding the scale of production in the lr
Decrease ac pver rnage of output, decrease av cots as business expand
Thee lower costs represent imporvemebt in productive efficieny and give a business a competitive advantage in a market- lower prices and increase dprofits
As long as lr av cost curve is declining inyernal economies of scale are being exploited

U shaped- as decrease unit costs fall as output increased- econ of scale
After productive effciiney point- unit costs increase as ooutput exceeds point, disecon of scale, decreasing retrns to scales

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25
Internal ecn of scale
Expansion of firm itself, increasing returns from large scale production, Technical ,managerial, finacial, risk bearing, netwrok
26
Internal econ of scale
Expansion of firm itself, increasing returns from large scale production, Technical ‚managerial, finacial, risk bearing, netwrok
27
Technical econ
Can afford more specilaist equipment and technology Containerizion- increase vol container same cost one driver
28
Monopsony power
1 buyer ie tesco buys all of oen farmer gs
29
Purchasing econ
Bulk buying Monopsony power- 1 buyer from a supplier
30
Managerial economies
Employong specialised staff to raise efficieny eg marketing accountancy
31
Financial economies
Lower interest rates on loans for larger firms Less risk for larger forims
32
Risk bearing economies
Diff products if one fails spreads risk
33
Network econ
Networks if suppliers/customers - lower marginal cost of additional users Ie netflix doesnt cost much to add anotehr user
34
Lrac
Long run av cost curve Envelope curve- made up lots of sr cost curves Diminishing returns so buy more capitala Assumes infinate noo plant sizes and businesses choose least costly method of prodcution in lr
35
Minimum efficient scale (mes)
Scale of output where internal econ of scale have been fully exploited Eg small businesses Econ of scale, downwards sloping, platea constant returns to scale then up disecon of scale
36
Scope may reach mes
Low mes Limited internal scale economies contestable market
37
Natural monopoly
High mes high barriers to contestability Extensive internal econ of scale Ie water and scarce returns
38
External econ of scale
Expansion of industry in which aim is merger Arise from growth of an industry Rapid growth in inovaing Shifts curve left
39
Examples of external econ of scale
Transport netwroks- decrease logistics cost Relocation of suppliers- to centre of production Agglomeration economics- benefits of reduced production costs as business in similar industries clsoer together eg estate agents lawyers accountants in london, attracts ppol of labour, access complementary gand s
40
Economies of scope
Cheaper to prodcue a range of products rather than specialize in a limited number Eg hypermarkets amaxon Can sell under company brands, chanell logistics- p&g/gilette merger Cost saving from product diversification
41
Causes of disecon of scale
Control and communications- problem monitor productivity and owrk quality- risk increasing wastage of resources increase cost but not to total output Cooperatoion- workers in large firms may feel sense of alienation and loss of morale Negative efects of internal politics- information overload, unrealistic expectaations aonmng managers, cuktue clash between senior peopel with inflated egos More regulation and scrutiny by gov as grow bigger increases costs by regulation Too much underutilised capital
42
Diseocn of scale lead to
Business moved past optimum size Buisnesses suffering from productive inefficiency Higher unit costs will decrease total profits Businesses may have to charge higher prices in order to counter their increased costs Lost competitiveness could lead to decrease market share, decreased fall share price
43
Eval econ of scale
All businesses can exploit some econ of sclae Nature of production technology requirements will influence size of mes relative to market demand Many econ depend on businesses achieving high rate of capacity utilisatino- lower fized cost/unit Small businesses can thrive and prosper even in markets dominated by scaled businesses, trhough differentation-better customer service [
44
Revenue
Income generated from the sale of gs in a market Money comingnto firm- Turnover
45
Av revenue
Price per unit Total revenue/output
46
Marginal rev
Change in rev from selling one extra uinit of output Change in total rev/change in output
47
Total rev
Price per unit x q
48
Ped and rev
Ped always diagonal straight line Highest price reduction in price will have elastic rpice- lower pirces causes rev to increase Demand to rpice inelastic towards bottom demand curve- fall in price causes total rev to change Slope of total rev curve- differenaion of total rev Slope of marginal rev curve- half as steep as av rev curve- cuts x acis halway
49
Normal profit
Firm making enough profits to cover its cost Opp cost of staying in business, equivalent to profit that could have been earned by next best business alternative
50
Supernormal profits
Any excess over normal profits In a perfectly competitive market with no barriers to entry supernormal onlyl cocyr in sr
51
Creative destruction
Technological innovation replace existing market, only those innovative survive Schumpter
52
Features of different markets
No of producers Conc ratio- percentage of market top x no firms have Barriers to entry Product differentation Homogenous-products same, hetergnous- goods that are diff and have larger q Price taker/maker- determines the ability to charge eth eprice of a good
53
Importance of profit
Finance for capital investment and randd throgh retained profits Market entry increase supernormal profits send signials other producers withon a market Demand for and flow of factor resourves- resources flower where risk Signals about health of econ- increased profits may reflect imporvements in supply side perfomrance, result in higher level ad, econ recovery
54
Factors affecting profitability
Degree market competition- if more comp then tend towards normal profits, monopoly wit hbarriers to entry supernormal profits made in lt Rate of growth of market demand0 profitability squeexed in recession,decrease demandm business lessprices power Ped potential to use price discrimination to icnrease profits- charge diff prices diff people Changes cost factors- variable/fixed, impact gov regulators, subsidies
55
Shut down point
When firm no longer covers variable costs (vairable cost curve above d=ar=mr) o Can survive for a bit if can pay some fixed cost
56
Productivity gap
Diff between labour productivity eg in uk and other developed economies
57
Exchange
To give something in return for something else recieved Money is a medium of exchange
58
Plant
An establishment, such as a factory, a workshop or retail outlet, owned and poperated by a firm
59
Increasing returns to scale
When the scale of all the factors of production employwed increases , output increases at a faster rate
60
Decreasing returns to scale
When th scale of all factors of production employed increases, output increases at a slower rate
61
Internal disecon of scale
Mangerial disecon of scale- admin of firm more diff as firm grows in size, delegation to lower staff mean may be unskilled Communication failure- too many layers of management, reducing staff productivity Motivational disecon of scale- overspecialisation perform repetitive broing tasks and have little incentive to use personal initiative in ways which help their employer
62
Quantity setter
When a firm faces a downward sloping demand curve for its product, it possesses the market power to set the q of the good it wishes to sell
63
Invention
Making something entirely new, something that did not exist at all before
64
Innovation
Imporves on or makes a significant contribuution to something that has already been invented thereby turning the results of invention into a product
65
Example of creative destruction
Effective mobile phone cameras mean that kodak struggle to find niche in new market as no longer want digital camera or camera film
66
Iphhone creatively destoryed
Blackberry and nokia
67
Artificial barriers
Strategic barriers Man made barriers to market entry Patents, product differentiation, high levels of expendaitre on advertising and marketing, benefitting from first mover adv, limit pricing and predatory pricing
68
X efficiency
Firm sucessfully eliminates all unnecessary costs of production it might otherwise have incurred
69
Product differentiation benefit to consumer
Economist lancaster The number of differentiated products increases until the gain to consumers in choice from adding one more products to the market exactly equals the loss resulting from having to pridce less of the existing products at a higher cost
70
Market conduct
The pricing and marketing polcies persued by firms Market behavoir but not confdused with market performance which refers to teh end results of these policies
71
Price war
Occurs when rival firms continuously lower prices to undercut each other
72
Adv oligopoly
Firms benefit from economic of scale in oligopoly which means they can becomoe mroe dynamically efficient and can pass on cost cust as low prices to consumers With only a few firms available from which best to buy it will be easy for consumers to compare and choose the best option for their needs, other markets may give too much choice, confusion- behavoural econ Provided degree of comp, oligopolists continuoously innovate and develop new and better products
73
Disadv oligopoly
Restrict output and raise prices comp to more comp market, may satisfice Cartels- raise prices, productive and allocative inefficiency and lack fo choice Small comp and innovative firms may find it difficult to to entert he market Producer rather than consumer wins
74
Deadweight loss
The loss of econ welfare when the max attainable level of total welfare fails to be achieved
75
The demand curve is derived form the
Av rev
76
The upward trend of the lrac beyond a certain scale of production reflects the fact thta beyond thsi point
Disecon of scale exceed econ of scale
77
Diff between sr and lr costs
There are no fixed costs in the lr but are in sr
78
The law of diminishing returns will only apply in situations where
There is atleast one fixed factor of production
79
Returns to scale concept
The output of a business responds to any chaneg in factor inputs
80
Division of labour requires an efficient means of exchange because
Specialist workers are not self sufficient
81
Productivity is a measure of
Output per unit of input
82
Law of diminishing marginal utility
As more of a product is consumed, extra satisfaction will decline

2-Economics- Micro (14 decks)

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