Section 3: Business Economics Flashcards
What is productivity?
A measure of how much a factor of production can produce in a given period of time
For example, the productivity of land might be measured by output per hectare per year.
What does labour productivity measure?
How much a worker can produce in a given period of time
For example, output per person per hour.
Define specialisation.
Where firms, regions, countries or factors of production concentrate on producing a particular good or service, or carrying out a particular task.
What is the division of labour?
When the production of a good is broken down into many separate tasks and each worker performs one task, or a narrow range of tasks, as part of the production process.
What is the short run in production?
The time period when there is at least one fixed factor of production.
What is the long run in production?
The time period when all factors of production are variable.
What does the law of diminishing returns state?
As more of a variable factor of production is used in combination with a fixed factor of production, both the marginal and average returns to the variable factor of production will initially increase but eventually decrease.
What are returns in the context of production?
The amount produced, ie the output of a good or service.
Define marginal returns.
The change in total output that results from employing one more unit of a variable factor of production when the amount employed of all other factors of production is unchanged.
How are average returns calculated?
By dividing total output by the number of units of the variable factor that are employed.
What are total returns?
Total output.
What are returns to scale?
The effect on total output when all factors of production are changed. It related to the long run when all factors of production are variable.
What are increasing returns to scale?
When a given percentage increase in all factor inputs leads to a greater percentage increase in output.
What are constant returns to scale?
When a given percentage increase in all factor inputs leads to the same percentage increase in output.
What are decreasing returns to scale?
When a given percentage increase in all factor inputs leads to a smaller percentage increase in output.
Define fixed costs.
Costs that do not change when output changes.
What are variable costs?
Costs that change when output changes.
What is marginal cost?
The change in total cost when one more or one fewer unit of output is produced.
How is average cost calculated?
Total cost divided by output.
What is total cost?
Total fixed cost plus total variable cost.
What are internal economies of scale?
When the growth of a firm results in the firm’s long-run average cost falling.
What are external economies of scale?
When the growth of an industry leads to lower average cost for firms in that industry.
Define diseconomies of scale.
When the growth of a firm results in the firm’s long-run average cost increasing.
What does the long-run average cost curve (LRAC) show?
The minimum average costs of producing any given level of output when all factors of production are variable but technology has not changed.
