Production,costs And Revenues Flashcards
What are the different types of economies of scale
Technical
Managerial
Marketing
Financial
Risk bearing
Types of diseconomies of scale
Managerial
Communication failure
Motivational
financial
marketing
bulk buying
specialisation
Define economies of scale
Falling LRACs of production that result in the increasing scale or size of a firm
When do diseconomies of scale occur
When an increase in output leads to a rising LRACs of production
What does the L shaped LRAC curve assume
Substantial economies of scale that don’t turn into diseconomies and instead flatten out lrac
The size of the firm is MES
What is MES
Minimum efficient scale
3 main types of technical economies of scale
Indivisibilities- minimum size below which they cannot efficiently operate
Spread of R&D
Volume - increasing scale of plant allows to conserve heat and energy
What is associated with managerial economies of scale
Specialisation and division of labour
How can firms spread risks
Diversifying their output,markets, supply and finances
What is managerial diseconomies of scale
When managerial functions are reduces and bad decisions are made
Define internal economies of scale
Cost saving resulting from the growth of the firm itself
What is an external economy of scale
Cost saving as a result of growth of the MARKET the firm is in
What allowed car manufacturing to benefit of economies of scale
Henry Fords adaptation of the moving assembly line
What is total revenue
All the money a firm earns from selling the total output of a product
How is average revenue calculated
AR= total revenue / output
How is total profit calculated
Total revenue - total costs
What is production
Production converts inputs into outputs of goods and services
Short run production
Occurs when a firm adds variable factors of production to fixed factors
Long run production
Occurs when a firm changes the scale of all factors of production
What is productivity
Output per worker per period of time
Productivity gap
Difference between labour productivity between HICs,LICs,NEEs
How will total output improve through specialisation
Saving time through not switching tasks
Better machinery or capital can be employed
“Practice makes perfect”
Production definition
the process of converting inputs of FoP into outputs
productivity
a measure of efficiency in which inputs are transformed into outputs calculated by unit of output per worker over time
importance of productivty
economic growth
(GDP)
competitiveness (lower price, higher quality)
higher wages and standard of living
specialisation
concentration of individuals or firms on producing a singular or limited amount of goods and services
Adam smiths contribution to specialisation
he argued that it leads to increased productivity and economic growth
advantages of specialisation
increased productivity, higher skills, more efficiency
EOS- large amount of goods can’t be produced quickly
lower costs - reduced training time
disadvantages of specialisation
monotony
dependency - economy dependent on singular economy very vulnerable to economic shocks
short run
at least one factor of production is fixed whilst others are variable
long run
all factors and costs of production are variable
marginal returns
return on additional FoP invested in
average returns
output per unit of input / by all input
total returns
value of all derived output from additional inputs
law of diminishing returns
profit/ returns must start to decrease once a certain level of investment is reached after optimal capacity
returns to scale
a rate at which a change in output leads to a. change in input (long term theory)
increasing returns to scale
output increases when FoP increase
assumptions of returns to scale
all FoP are variable
market is perfectly competitive
technology is constant
diminishing returns to scale
output changes less than the proportionate change in input
fixed cost
a CoP/ business expense that does not increase or decrease with changes in output of good and services e.g. labour
variable costs
costs that change wit volume of output e.g. raw materials
AC
costs per output unit
TC
variable + fixed costs
reason for U shaped cost curve
due to economies of scale and diseconomies of scale. If a firm has high fixed costs, increasing output will lead to lower average costs.
