Production, costs and revenue (Micro) Flashcards
Understand short/long run production and associated theory.
What is production?
The process by which inputs are turned into outputs through utilisation of factors of production
What is productivity?
A measurement of the rate of production
What is labour productivity?
Output per worker per unit of time
Formula for productivity?
Total output per unit of time/number of units of factors of production
What is specialisation?
A country, region, firm or individual producing a limited number of goods, such as London providing financial services
What is the division of labour?
Specialisation on an individuel level, made by Adam smith.
What is necessary for specialisation?
Exchange
What are some of the benefits of specialisation?
-Increased skill, so improved productivity
-No time lost to moving between tasks
-Allows people to work in strengths
Define short run?
A period of time in which at least one factor of production is fixed
Define long run?
A period of time in which all factors of production are variable
What are the two types of cost?
Fixed and variable
What is a fixed cost vs a variable cost?
A fixed cost is one doesn’t change with output, whilst a variable cost will change with the level of output
What happens with fixed costs with output?
Fall over time as cost is spread over greater output
What happens with variable costs with output?
Will initially fall until more factor of production are used and disruptions occur and it falls
What are total costs?
Fixed + variable
What is marginal cost?
The cost of producing one additional unit of output
Does marginal cost rise or fall with output?
Initially falls then rises
What is law of diminishing marginal returns?
The idea that as extra variable units of factors of production area added to a fixed factor, marginal output falls
Is the law of diminishing marginal returns short or long run?
Short run theory
What are returns to scale?
A theory describing the relationship between long run output with inputs
What are increasing returns to scale?
When increasing inputs increased outputs at a greater proportion
What are decreasing returns to scale?
When increasing inputs causes outputs to increase at proportionately smaller rate.
What are economies of scale?
The reduced average total costs incurred by firms when output is increased in the long run?
Types of economies os scale?
Internal or external
