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Economics MICRO > Production, Costs and Revenues > Flashcards

Production, Costs and Revenues Flashcards

1
Q

what is the measure for productivity ?

A

output per worker

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2
Q

what is the formulae for productivity ?

A

output/ number of workers

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3
Q

how to increase productivity ?

A

training workers
using more advanced technology/ machinery

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4
Q

what is specialization ?

A

each worker has a specific task in the production process

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5
Q

what did Adam Smith famously discovered ?

A

that when division of labor was used, productivity increased

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6
Q

what are the advantages of specialization & division of labor ?

A
  • higher output
  • higher quality
  • greater variety of goods
  • economies of scale, lower costs
  • more competition, leading to lower prices
  • higher profits
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7
Q

what are the disadvantages of specialization & division of labor ?

A
  • repetitive, lower motivation of workers, negatively effects quality & productivity
  • higher workforce turnover
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8
Q

what is the short run definition in terms of FOP ?

A

at least one FOP is fixed

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9
Q

what is the long run definition in terms of FOP ?

A

all FOP are variable

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10
Q

why is the SRAC curve shaped the way it is ?

A
  • diminishing returns
  • at one point increasing output will be less productive, MC starts to increase
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11
Q

why is the LRAC curve shaped like a U ?

A

. initially AC falls when firms take advantage of Economies of Scale

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12
Q

when do internal economies of scale occur ?

A

when a firm grows

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13
Q

why do internal economies of scale occur when a firm grows ?

A

because AC fall as production increases

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14
Q

what is the mnemonic for internal economies of scale ?

A

“Really Fun Mums Try Making Pies”

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15
Q

what does “Really Fun Mums Try Making Pies” stand for ?

A

Risk bearing
Financial
Managerial
Technological
Marketing
Purchasing

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16
Q

what is the risk bearing, internal E of S ?

A

firms expand their product range, to spread cost of uncertainty

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17
Q

what is the financial, internal E of S ?

A

banks are willing to lend money cheaply to bigger and growing companies

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18
Q

what is the managerial, internal E of S ?

A

larger firms are able to employ specialist managers who operate more efficiently, lowering AC

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19
Q

what is the technological, internal E of S ?

A

able to invest in better technology

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20
Q

what is the marketing, internal E of S ?

A

greater marketing budget

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21
Q

what is the purchasing, internal E of S ?

A

greater purchasing power, greater budget and influence on suppliers due to reputation

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22
Q

where do external economies of scale occur ?

A

within an industry

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23
Q

what is an example of external economies of scale ?

A

improving local roads, reduces transportation costs for firms/ businesses

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24
Q

which type of firms have a downward sloping curve, exactly like demand curve ?

A

price taker firms (perfectly competitive markets)

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25
Q

what is AR equal to ?

A

demand

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26
Q

what are private costs ?

A

cost of production for firms

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27
Q

what are social costs ?

A

private costs + external costs

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28
Q

what is supply equal to ?

A

S = MPC+ MSC

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29
Q

what are private benefits ?

A

satisfaction consumers get from consuming a good or service

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30
Q

what are social benefits ?

A

private benefits + external benefits

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31
Q

what is demand equal to ?

A

MPB + MSB

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32
Q

what is allocative efficiency ?

A

maximization of society surplus, both consumer and producers wants and needs are met

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33
Q

what is the equation for allocative efficiency ?

A

MC = AR

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34
Q

what is productive efficiency ?

A

maximum production at the lowest possible cost

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35
Q

what is the equation for productive efficiency ?

A

MC = AC

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36
Q

what is the equation for profit maximization ?

A

MC = MR

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37
Q

what is the equation for a normal profit ?

A

AC = AR

38
Q

what is the equation for revenue maximization, and why ?

A

MR = 0 , because when MR is positive, total revenue is increasing, and when MR is negative total revenue is decreasing

39
Q

the factors of production are combined in such a way as to … ?

A

minimise the costs and maximise the sales revenue

40
Q

what is the definition of production ?

A

the act of adding value to the factors of production to create goods and services

41
Q

during a recession what happens to production ?

A

it falls

42
Q

during a boom what happens to production ?

A

it increases

43
Q

what is productivity a measure of ?

A

how efficiently resources are being used in the creation of goods and services

44
Q

how does higher productivity benefit a firm & the economy ?

A
  • lower costs, improving a firms/ economy to compete
  • produce more output
  • generate higher profits
  • higher wages
  • higher gov revenue from corporation tax
45
Q

what is division of labour ?

A

when the production process is broken up into several component tasks

46
Q

in the short run … ?

A

at least one factor of production is fixed

47
Q

in the long run … ?

A

all factors of production are variable

firms plan to increase capacity and production in this stage

48
Q

what is the law of diminishing marginal returns ?

A

the point at which adding additional units of labour, decreases productivity

49
Q

what are fixed costs ?

A

costs that do not change as level of output changes

50
Q

what are variable costs ?

A

costs that do vary as level of output changes

51
Q

what are short run costs ?

A

some factors of production are fixed costs

52
Q

what are long run costs ?

A

all factors of production are able to be variable costs

53
Q

what is the formula for average total cost ?
fixed cost ?
variable cost ?

A

total cost/ quantity
fixed cost/ quantity
variable cost/ quantity

54
Q

on a cost curve diagram where do MC intersect AC ?

A

at its lowest point

55
Q

what starts to begin when the MC curve starts to increase ?

A

diminishing marginal returns

56
Q

on the cost curve diagram what are the labels for the axis ?

A

Y = cost, rev, price
X = quantity

57
Q

what are factor inputs ?

A

the factors that are considered in production of goods/ services

i.e. raw materials, wages etc

58
Q

what are the two types of factor inputs ?

A

capital-intensive

labour-intensive

59
Q

the more expensive the factor inputs … ?

A

the more expensive cost of production

60
Q

the cheaper the factor inputs … ?

A

the cheaper the cost of production

61
Q

what are capital intensive factor inputs ?

A

machinery based factor inputs

62
Q

what do economies scale enable business to do ?

A

lower their AC of production

63
Q

how do firms generate increasing returns to scale in the long run ?

A

economies of scale

64
Q

what are on the axis of the economies of scale LRAC curve ?

A

Y = average cost
X = quantity of output

65
Q

At some level of output, a firm will not be able to reduce costs any further, what is that point called ?

A

productive efficiency (maximum output, at the lowest cost)

66
Q

how do internal economies of scale occur ?

A

growth in the scale of production within a firm

67
Q

when do external economies of scale occur ?

A

when there is an increase in the size of the industry in which the firm operates in ?

68
Q

what are 4 types of external economies of scale ?

A

geographic cluster (firms move closer to manufacturers)

improved transport links

increase in skilled labour

favourable legislation

69
Q

what are 4 causes/ types of diseconomies of scale ?

A

management (when managers work more in their own interest than in the interest of the firm)

communication (when a firm with multiple layers of management & perhaps in multiple geographic locations, struggle to communicate quickly & efficiently leading to slow responses & increased AC)

geographical (when a firm has widespread bases of operations & this leads to logistical and communication challenges which can raise the AC)

cultural (when a firm expands into foreign markets in which workers have very different cultural work/productivity norms which can raise the AC)

70
Q

what is the difference between short run and long run in terms of costs ?

A

in the short run, firms will operate on their SRAC

in the long run, firms will increase its capacity (e.g. build a new factory), and then operate for a period of time on a new short-run cost curve

71
Q

what occurs in the short run ?

A

day to day operations of a firm

72
Q

what occurs in the long run

A

firms plan to increase scale of production and lower AC (move into a new SRAC curve)

73
Q

what is the equation for total revenue ?

A

selling price x quantity sold

74
Q

what is the equation for average revenue ?

A

total revenue / quantity

75
Q

what is the equation for marginal revenue

A

change in total revenue / change in quantity

76
Q

in a perfectly competitive market where the firm is a price taker, as output increases how does price and revenue respond ? and why ?

A

price per unit stays the same, resulting in a directly proportionate increase in total revenue

A higher price would decrease sales to zero due to competition
A lower price would result in all sellers lowering their price due to competition

77
Q

in an imperfectly competitive market where the firm is a price maker, as output increases how does price and revenue respond ? and why ?

A

price per unit will fall, resulting eventually in a decrease in total revenue

In order to sell an additional unit of output, the price (AR) must be lowered

78
Q

what are explicit costs ?

A

costs that have to be paid

e.g. raw materials, wages

79
Q

what are implicit costs ?

A

the opportunity costs of production

80
Q

where does normal profit occur ?

A

TR = TC

81
Q

where do supernormal profits occur ?

A

TR > TC

82
Q

what are the roles of profit in a market economy ?

A

incentive for innovation and entrepreneurship

allocation of resources (When businesses earn profits, it indicates that they are meeting consumer demands efficiently)

competition (benefits consumers by providing them with better products at lower prices)

economic growth

wealth creation

83
Q

why is competition good for consumers ?

A

benefits consumers by providing them with better products at lower prices

84
Q

what is the definition of invention ?

A

the creation of entirely new products and processes that did not exist before

85
Q

what is innovation ?

A

the development of existing products, designs or ideas to improve them or introduce new features

86
Q

what does advances in technology enable ?

A

improved:
- production
- productivity (increase output per unit)
- efficiency (reduces waste, optimal allocation of resources)

all these factors have potential to decrease cost of production

87
Q

what does technological change cause (negative) ?

A

(creative desruction) decline of traditional industries due to innovation

88
Q

how can technology reduce barriers to entry ?

A

small firms may be able to enter markets normally dominated by larger firms

89
Q

how can technology reduce information asymmetry ?

A

web technologies can present large amounts of information quickly

90
Q

how can technology increase competition ?

A

increased access to larger markets, ecommerce

91
Q

how can technology increase market power ?

A

can result in the formation of more oligopolies and monopolies

Economics MICRO (8 decks)

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