Production Costs and Revenues Flashcards
Specialisation
Workers, firms of countries who only perform a narrow range of tasks
Division of Labour
Different workers performing different tasks in a goods/service production
Average Cost (with equation)
The cost per unit of output
AC = TC / Q
Average Revenue (with equation)
Revenue per unit of output
AR = TR / Q
Capital Productivity
Output per unit of capital
Economies of Scale
These are the cost advantages when a firm increases their output
What is Internal Economies of Scale and what are some examples
These are factors that are used by the firm itself to decrease their costs as output increases
Risk-Bearing
Financial
Managerial
Technology
Marketing
Purchasing
What are External Economies of Scale and what are some examples
These are factors that occur within the industry
Better transport infrastructure
Component supplies move closer
R&D firms move closer
Diseconomies of Scale
This is when output exceeds a certain point which then increases costs for each extra unit produced
What are the factors of Diseconomies of Scale and explain each one
Control - harder to monitor how productive workforce is
Communication - plans and objectives might get lost or modified
Coordination - harder and more complicated to coordinate each worker
Motivation - workers may feel alienated and not valued so productivity may fall
Constant Returns to Scale
When output increases as an equal proportion to the increase in input
Decreasing Returns to Scale
When output increases as a smaller proportion to the increase in input
Increasing Returns to Scale
When output increases as a larger proportion to the increase in input
Economies of Scope
When it is cheaper to make a range of products
Fixed Costs
Costs which don’t increase as output rises
TFC = TC - TVC
Variable Costs
Costs when paying for variable costs of production
TVC = TC - TFC
Labour Productivity
Output per worker
Productivity
Output per unit of input
Law of Diminishing Returns
Adding variable factors in the short run leads to a point where returns would start to drop (e.g. chefs in a single kitchen)
Short-run
Where at least one factor of production is fixed
Long-run
Where all factors of production are variable
Technical Economy of Scale
Cost saving through changing the production process
