Production, Costs and Revenues Flashcards
Average cost calculation
- the cost per unit
- total cost/output
Fixed costs definition
costs which do not vary as the level of production increases or decreases
How is short-run defined?
a period of time when at least one of the factors of production is fixed
How is long-run defined?
a period of time when all factors of production are variable
Total costs calculation
- sum of all costs of production
- fixed costs + variable costs
Marginal revenue definition
additional revenue gained by a firm from selling an additional unit of output
Define diminishing marginal returns to a fixed factor
- 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
Define economies of scale
a proportionate saving in costs gained by an increased level of production
Define diseconomies of scale
an economic disadvantage such as increase in costs arising from an increase in the size of an organisation
Define specialisation and give the main benefit of specialised workers
- a particular area in which a worker can become an expert in
- increased productivity
What are the four functions of profit?
- finance for investment
- market entry
- demand for factor resources
- signals about the health of the economy
What is the law of diminishing marginal returns?
as successive units of a variable factor are applied to a fixed factor, the total output will increase but at a diminishing rate
What is meant by the division of labour?
where production is broken down into many separate tasks
Give 4 limitations of the division of labour
- 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
What are the 4 gains for specialisation
- 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
