Production,costs And Revenues

Question 1

What are the different types of economies of scale

Answer 1

Technical
Managerial
Marketing
Financial
Risk bearing

Question 2

Types of diseconomies of scale

Answer 2

Managerial
Communication failure
Motivational
financial
marketing
bulk buying
specialisation

Question 3

Define economies of scale

Answer 3

Falling LRACs of production that result in the increasing scale or size of a firm

Question 4

When do diseconomies of scale occur

Answer 4

When an increase in output leads to a rising LRACs of production

Question 5

What does the L shaped LRAC curve assume

Answer 5

Substantial economies of scale that don’t turn into diseconomies and instead flatten out lrac
The size of the firm is MES

Question 6

What is MES

Answer 6

Minimum efficient scale

Question 7

3 main types of technical economies of scale

Answer 7

Indivisibilities- minimum size below which they cannot efficiently operate
Spread of R&D
Volume - increasing scale of plant allows to conserve heat and energy

Question 8

What is associated with managerial economies of scale

Answer 8

Specialisation and division of labour

Question 9

How can firms spread risks

Answer 9

Diversifying their output,markets, supply and finances

Question 10

What is managerial diseconomies of scale

Answer 10

When managerial functions are reduces and bad decisions are made

Question 11

Define internal economies of scale

Answer 11

Cost saving resulting from the growth of the firm itself

Question 12

What is an external economy of scale

Answer 12

Cost saving as a result of growth of the MARKET the firm is in

Question 13

What allowed car manufacturing to benefit of economies of scale

Answer 13

Henry Fords adaptation of the moving assembly line

Question 14

What is total revenue

Answer 14

All the money a firm earns from selling the total output of a product

Question 15

How is average revenue calculated

Answer 15

AR= total revenue / output

Question 16

How is total profit calculated

Answer 16

Total revenue - total costs

Question 17

What is production

Answer 17

Production converts inputs into outputs of goods and services

Question 18

Short run production

Answer 18

Occurs when a firm adds variable factors of production to fixed factors

Question 19

Long run production

Answer 19

Occurs when a firm changes the scale of all factors of production

Question 20

What is productivity

Answer 20

Output per worker per period of time

Question 21

Productivity gap

Answer 21

Difference between labour productivity between HICs,LICs,NEEs

Question 22

How will total output improve through specialisation

Answer 22

Saving time through not switching tasks
Better machinery or capital can be employed
“Practice makes perfect”

Question 23

Production definition

Answer 23

the process of converting inputs of FoP into outputs

Question 24

productivity

Answer 24

a measure of efficiency in which inputs are transformed into outputs calculated by unit of output per worker over time

Question 25

importance of productivty

Answer 25

economic growth (GDP) competitiveness (lower price, higher quality) higher wages and standard of living

Question 26

specialisation

Answer 26

concentration of individuals or firms on producing a singular or limited amount of goods and services

Question 27

Adam smiths contribution to specialisation

Answer 27

he argued that it leads to increased productivity and economic growth

Question 28

advantages of specialisation

Answer 28

increased productivity, higher skills, more efficiency EOS- large amount of goods can't be produced quickly lower costs - reduced training time

Question 29

disadvantages of specialisation

Answer 29

monotony dependency - economy dependent on singular economy very vulnerable to economic shocks

Question 30

short run

Answer 30

at least one factor of production is fixed whilst others are variable

Question 31

long run

Answer 31

all factors and costs of production are variable

Question 32

marginal returns

Answer 32

return on additional FoP invested in

Question 33

average returns

Answer 33

output per unit of input / by all input

Question 34

total returns

Answer 34

value of all derived output from additional inputs

Question 35

law of diminishing returns

Answer 35

profit/ returns must start to decrease once a certain level of investment is reached after optimal capacity

Question 36

returns to scale

Answer 36

a rate at which a change in output leads to a. change in input (long term theory)

Question 37

increasing returns to scale

Answer 37

output increases when FoP increase

Question 38

assumptions of returns to scale

Answer 38

all FoP are variable market is perfectly competitive technology is constant

Question 39

diminishing returns to scale

Answer 39

output changes less than the proportionate change in input

Question 40

fixed cost

Answer 40

a CoP/ business expense that does not increase or decrease with changes in output of good and services e.g. labour

Question 41

variable costs

Answer 41

costs that change wit volume of output e.g. raw materials

Question 42

AC

Answer 42

costs per output unit

Question 43

TC

Answer 43

variable + fixed costs

Question 44

reason for U shaped cost curve

Answer 44

due to economies of scale and diseconomies of scale. If a firm has high fixed costs, increasing output will lead to lower average costs.