Production, Costs and Revenue Flashcards
Graph and define ATC
Correct ATC graph (U-Shaped)
The average total cost is the fixed plus variabkle costs, divided by the quantity produced
Graph and define AVC
U-Shaped curve, below ATC
Variable costs are the costs incurred by each unit of production such as packaging, shipping, power usage.
AVC is variable costs/production
Graph and define AFC
Decreasing function, asymptotic to x axis
Fixed costs are the costs which are unaffected by output (since at least one FOP is fixed in ST), e.g. salaries, rent
AFC is fixed costs/production
Graph and define MC
fish hook shape, intersects lowest point of ATC, Marginal cost is the cost incurred by producing one additional unit. in a table it is the cost of producing the unit it is next to.
Graph (2 possible) and explain diminishing returns
Diminishing returns is where additional productive units yield increasingly low returns before becoming negative.
AP,TP,MP or PPF
Explain internal vs external economies of scale
Internl economies of scale are effects on the inner workigns of a business caused by raising production.
External are features of a firms surrundings they are able to capitalise on e.g. specialised transport links, science aprks with similar firms, diffusion of knowledge.
Difference between invention and innovation
Invention: The creation of a new technology
Innovation: The improvement of an existing technology or the combination of different technologies to make a new one.
Explain returns to scale and explain diminishing RTS
The amount of output gained from increasing labour. Diminishing returns to scale occur when the MPP of new labour units falls, leading to flattenin output as labour grows.
Explain the theory of creative destruction
Creative destruction is the failure of older obsolete companies when revolutionary innovation or invention occurs.
Define minimum efficient scale
MES is the first level of output where ATC is minimised
