Production Costs and Revenues Flashcards
Describ the short run?
At least one factor of production can’t change
Some fixed costs
Describe the long run?
All factor inputs can change
All costs are variable
Define fixed costs?
Costs which do not vary with output
E.g. Rents advertising and capital goods
Indirect
Define variable costs?
Costs which change with output
E.g. Raw materials
Direct costs
What is the total cost?
Total variable costs + total fixed costs
What is specialisation?
When each worker completes a specific task in a production process
Who can achieve specialisation?
Individuals
Businesses
Regions of countries
Countries
Advantages of specialisation?
Greater variety of goods and services produced
More opportunities for economics of scale (size of market increases)
Higher output and potentially higher quality (people focus on what they are good at)
More competitive and this gives an incentive for firms to lower their costs, keeping prices down
Disadvantages of specialisation?
Work becomes repetitive, lower motivation, affects quality and productivity
More structural unemployment (skills transferable) because workers focused on one task for so long
Higher worker turnover for firms which employees become dissatisfied with their jobs and leave regularly
Variety can decrease by producing one type of good
What is comparative advantage?
A country can produce a good at a lower opportunity cost to another
When does absolute advantage occur?
When a country can produce more of a good with the same factor inputs
What is absolute advantage?
When a country can produce more of a good with the same factor inputs
Disadvantage of absolute advantage?
Less developed countries use non renewable sources too quickly
Over dependency on one commodity
What does being more productive do?
Lowers average costs per unit of output
How can productivity be increased?
By training workers or using more advanced capital machinery
What does being less productive require?
A larger input to produce the same quantity of output
How is productivity calculated?
By output per worker per period of time
What does being more productive require?
The same input e.g. No of workers
The same period of time
Produces more output
What does being less productive require?
Larger input to produce the same quantity of output
What is production?
Converting input into a final output
Satisfies consumer needs and wants
Calculate total revenue?
Price times quantity sold
When do internal economies of scale occur?
These occur when a firm becomes larger
Average costs of production fall as output increases
Examples of internal economies of scale mnemonic?
Really - risk bearing Fun - financial Mums - managerial Try - technological Making - marketing Pies - purchasing
When do diseconomies of scale occur?
When output passes a certain point and average costs start to increase per extra unit of output produced
3 Cs of diseconomies of scale?
Control
Coordination
Communication