Production, Costs and Revenues Flashcards

1
Q

Average cost calculation

A
  • the cost per unit
  • total cost/output
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2
Q

Fixed costs definition

A

costs which do not vary as the level of production increases or decreases

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3
Q

How is short-run defined?

A

a period of time when at least one of the factors of production is fixed

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4
Q

How is long-run defined?

A

a period of time when all factors of production are variable

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5
Q

Total costs calculation

A
  • sum of all costs of production
  • fixed costs + variable costs
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6
Q

Marginal revenue definition

A

additional revenue gained by a firm from selling an additional unit of output

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7
Q

Define diminishing marginal returns to a fixed factor

A
  • adding an additional factor of production results in smaller increases in output
  • when one input in the production of a commodity is increased while all others are held fixed, eventually the additional input results in no extra product
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8
Q

Define economies of scale

A

a proportionate saving in costs gained by an increased level of production

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9
Q

Define diseconomies of scale

A

an economic disadvantage such as increase in costs arising from an increase in the size of an organisation

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10
Q

Define specialisation and give the main benefit of specialised workers

A
  • a particular area in which a worker can become an expert in
  • increased productivity
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11
Q

What are the four functions of profit?

A
  • finance for investment
  • market entry
  • demand for factor resources
  • signals about the health of the economy
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12
Q

What is the law of diminishing marginal returns?

A

as successive units of a variable factor are applied to a fixed factor, the total output will increase but at a diminishing rate

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13
Q

What is meant by the division of labour?

A

where production is broken down into many separate tasks

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14
Q

Give 4 limitations of the division of labour

A
  • unrewarding: repetitive work that requires little skill lowers motivation and hits productivity
  • mass produced standardised goods lack variety for consumers
  • many people may choose to move to less boring creating a problem of high worker turnover
  • some workers may receive little training and may not be able to find alternative jobs if they find themselves out of work - they may then suffer from structural unemployment
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15
Q

What are the 4 gains for specialisation

A
  • higher output: total production of goods and services is raised and quality can be improved
  • variety: consumers have access to greater variety of higher quality products
  • a bigger market: specialisation and global trade increase the size of the market offering opportunities for economies of scale
  • competition and lower prices: increased competition acts as an incentive to minimise costs, keep prices down and therefore maintains low inflation
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16
Q

What are the 6 different types of economies of scale?

A
  • technical economies: invest in specialist technology
  • specialisation of workforce: increased productivity
  • marketing economies - spread fixed costs over sectors
  • purchasing economies - bulk buy
  • financial economies - lower interest rates
  • risk-bearing economies