Topic 3 Flashcards
Productivity Definition
Output per unit of input.
Productivity Gap Definition
The difference between labour productivity in the UK and in other developed economies.
Short-run Production Definition
Occurs when a firm adds variable factors of production to fixed factors of production.
Labour Productivity Definition
Output per worker.
Production Definition
The conversion of inputs, or services of factors of production, into final outputs of goods and services.
Capital Productivity Definition
Output per unit of capital.
Long-run Production Definition
Occurs when a firm changes the scale of all the factors of production.
Specialisation Definition
A worker only performing one task or a narrow range of tasks, or a country or firm producing a limited range of goods by an individual factor.
Division of Labour Definition
Breaking down the production of process so that different workers perform different tasks in the course of producing a good or service.
Advantages of Division of Labour
Time saving as workers wont need to switch between tasks, the workers become more efficient or productive at the task, more or better machinery or capital can be employed.
Disadvantages of Division of Labour
Low morale as the job is repetitive and tedious, low wages, lack of variety for customers.
How does the division of labour reduce cost and increase competitiveness?
Increased productivity, increased efficiency, low waste, more production in the same time, decreased average cost.
Trade Definition
The buying and selling of goods and services.
Exchange Definition
To give something in return for something else received.
Advantages of Specialisation
Increased output, variety has access to a greater variety of higher quality products, a bigger market, offers opportunities for economies of scale, competitive and lower prices.
Fixed Cost Definition
Cost of production which in the short run, doesn’t change with output.
Variable Cost Definition
Cost of production which changes with the amount that is produced, even in the short-run.
Total Cost Equation
Fixed Costs+Variable Costs
Average Cost Equation
Total Cost/Output
Economies of Scale Definition
As output increases, long run average cost falls.
Diseconomies of Scale Definition
As output increases, long run average cost rises.
Internal economies of scale
Technical economies, managerial economies, marketing economies, financial(or capital raising) economies, risk-bearing economies, economies of scope.
Technical Economies
Created through changes to the productive process as the scale of production and and level of output increase. Main types are: invisibilities- many types of plant or machinery are invisible, spreading cost of R&D costs over a longer production run will reduce unit costs in the long-run, volume economies- where costs increase slower than capacity, economies of massed resources, economies of vertically linked processes.
Marketing Economies
There is bulk-buying and bulk-marketing economies. Large firms can use their market power both by buy suppliers at a lower price and also to market their products on better terms negotiated with wholesalers and retailers.
Marketing Economies
There is bulk-buying and bulk-marketing economies. Large firms can use their market power both to buy supplies at a lower price and also to market their products on better terms negotiated with wholesalers and retailers.
Financial(or capital raising) Economies
Bulk-buying or bulk-borrowing of funds required to finance a business expansion. large firms can often borrow from banks and other financial institutions at a lower rate of interest and on better terms available to small firms.
Risk-bearing Economies
Large firms are usually less exposed to risk than small firms, because risks can be grouped and spread. It makes firms less vulnerable to sudden changes in demand or by conditions of supply that might severely harm a smaller less diversified business.
Economies of Scope
Factors that make it cheaper to produce a range of products together than to produce each one of them on their own.
Internal diseconomies of scale
Managerial diseconomies, communication failure, motivational diseconomies.
Managerial Diseconomies
As a firm grows in size, administration of the firm becomes more difficult. Delegation of some of the managerial functions to people lower in the organisation may mean that personnel who lack appropriate experience and may make bad decisions, thus increasing average costs of production.
Communication Failure
In a large organisation there may be too many layers of management between top managers and ordinary production workers, and staff can feel remote and unappreciated. When staff productivity begins to fall, unit costs begin to rise. As a result the problems facing the business are not effectively addressed.
Motivational Diseconomies
With large firms, it is often difficult to satisfy and motivate worker. Over specialisation may lead to de-skilling and to a situation in which workers perform repetitive boring tasks and have little incentive to use personal initiative in ways which to help their employer.
Internal Economy of Scale Definition
Cost saving resulting from the growth of the firm itself.
External Economy of Scale Definition
Cost saving resulting from the growth of the industry or market which the firm is a part.
Total Revenue Definition
All the money received by a firm from selling its total output.
Profit Definition
The difference between total sales revenue and total cost of production.
