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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
Q

Internal ecn of scale

A

Expansion of firm itself, increasing returns from large scale production,
Technical ,managerial, finacial, risk bearing, netwrok

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26
Q

Internal econ of scale

A

Expansion of firm itself, increasing returns from large scale production, Technical ‚managerial, finacial, risk bearing, netwrok

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27
Q

Technical econ

A

Can afford more specilaist equipment and technology
Containerizion- increase vol container same cost one driver

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28
Q

Monopsony power

A

1 buyer ie tesco buys all of oen farmer gs

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29
Q

Purchasing econ

A

Bulk buying
Monopsony power- 1 buyer from a supplier

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30
Q

Managerial economies

A

Employong specialised staff to raise efficieny eg marketing accountancy

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31
Q

Financial economies

A

Lower interest rates on loans for larger firms
Less risk for larger forims

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32
Q

Risk bearing economies

A

Diff products if one fails spreads risk

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33
Q

Network econ

A

Networks if suppliers/customers - lower marginal cost of additional users
Ie netflix doesnt cost much to add anotehr user

34
Q

Lrac

A

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
Q

Minimum efficient scale (mes)

A

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
Q

Scope may reach mes

A

Low mes
Limited internal scale economies contestable market

37
Q

Natural monopoly

A

High mes high barriers to contestability
Extensive internal econ of scale
Ie water and scarce returns

38
Q

External econ of scale

A

Expansion of industry in which aim is merger
Arise from growth of an industry
Rapid growth in inovaing

Shifts curve left

39
Q

Examples of external econ of scale

A

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
Q

Economies of scope

A

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
Q

Causes of disecon of scale

A

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
Q

Diseocn of scale lead to

A

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
Q

Eval econ of scale

A

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
Q

Revenue

A

Income generated from the sale of gs in a market
Money comingnto firm-
Turnover

45
Q

Av revenue

A

Price per unit
Total revenue/output

46
Q

Marginal rev

A

Change in rev from selling one extra uinit of output
Change in total rev/change in output

47
Q

Total rev

A

Price per unit x q

48
Q

Ped and rev

A

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
Q

Normal profit

A

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
Q

Supernormal profits

A

Any excess over normal profits
In a perfectly competitive market with no barriers to entry supernormal onlyl cocyr in sr

51
Q

Creative destruction

A

Technological innovation replace existing market, only those innovative survive
Schumpter

52
Q

Features of different markets

A

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
Q

Importance of profit

A

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
Q

Factors affecting profitability

A

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
Q

Shut down point

A

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
Q

Productivity gap

A

Diff between labour productivity eg in uk and other developed economies

57
Q

Exchange

A

To give something in return for something else recieved
Money is a medium of exchange

58
Q

Plant

A

An establishment, such as a factory, a workshop or retail outlet, owned and poperated by a firm

59
Q

Increasing returns to scale

A

When the scale of all the factors of production employwed increases , output increases at a faster rate

60
Q

Decreasing returns to scale

A

When th scale of all factors of production employed increases, output increases at a slower rate

61
Q

Internal disecon of scale

A

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
Q

Quantity setter

A

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
Q

Invention

A

Making something entirely new, something that did not exist at all before

64
Q

Innovation

A

Imporves on or makes a significant contribuution to something that has already been invented thereby turning the results of invention into a product

65
Q

Example of creative destruction

A

Effective mobile phone cameras mean that kodak struggle to find niche in new market as no longer want digital camera or camera film

66
Q

Iphhone creatively destoryed

A

Blackberry and nokia

67
Q

Artificial barriers

A

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
Q

X efficiency

A

Firm sucessfully eliminates all unnecessary costs of production it might otherwise have incurred

69
Q

Product differentiation benefit to consumer

A

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
Q

Market conduct

A

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
Q

Price war

A

Occurs when rival firms continuously lower prices to undercut each other

72
Q

Adv oligopoly

A

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
Q

Disadv oligopoly

A

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
Q

Deadweight loss

A

The loss of econ welfare when the max attainable level of total welfare fails to be achieved

75
Q

The demand curve is derived form the

A

Av rev

76
Q

The upward trend of the lrac beyond a certain scale of production reflects the fact thta beyond thsi point

A

Disecon of scale exceed econ of scale

77
Q

Diff between sr and lr costs

A

There are no fixed costs in the lr but are in sr

78
Q

The law of diminishing returns will only apply in situations where

A

There is atleast one fixed factor of production

79
Q

Returns to scale concept

A

The output of a business responds to any chaneg in factor inputs

80
Q

Division of labour requires an efficient means of exchange because

A

Specialist workers are not self sufficient

81
Q

Productivity is a measure of

A

Output per unit of input

82
Q

Law of diminishing marginal utility

A

As more of a product is consumed, extra satisfaction will decline

2-Economics- Micro (14 decks)

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