Production, Costs and Revenue Flashcards
Production
Conversion Of factor inputs into final outputs
Total Factor Productivity
Output of all factors of production
Labour Productivity
Output per worker
Capital Productivity
Output per unit of capital
Factor Productivity
Average output of all factors of production
Productive Efficiency
A firm uses the minimum inputs to produce the maximum output at the lowest cost
Economies Of Scale
As output increases unit costs decrease
Diseconomies Of Scale
As output increases unit costs rise
Economies Of Scale Examples
Specialisation
Better management
Purchasing economies reduce costs
Diseconomies Of Scale Examples
Lack of communication
Lack of coordination
Bureaucracy
Bureaucracy
Where large organisations have overly complex administrative procedures
Specialisation
Firms concentrate on producing specific goods or services
Benefits Of Specialisation
Increases output
Each economic unit specialise in what they are best at
Efficient use of time
Improved division of labour
Specialisation Disadvantages
Repetitive work reduces motivation
May not be able to find alternative work with only specific skills
Short Run
The time period in which a minimum of one factor of production is fixed
Long Run
The time period in which no factors of production are fixed
Fixed Cost
Costs that don’t vary with output
E.g Rent
Variable Costs
Costs that vary with output
E.g Raw material costs
Total Cost
Fixed Cost + Variable Cost
Average Costs
Average cost of producing a unit of output
Total cost / Output
Internal Economies Of Scale
Occur due to an increase in the scale of production of a firm
External Economies Of Scale
An increase in the scale of production within the industry
Improved infrastructure
Suppliers located nearby
Purchasing Economies
Firms buy I bulk to secure lower prices per unit
Technical Economies
Bigger and more efficient machinery
Lower costs per unit
More spent on research and development
