Year 12 Work

Question 1

Long run definition

Answer 1

A time period where all the factors of production and costs are variable

Question 2

Total product definition

Answer 2

Total output produced by workers

Question 3

Average product definition

Answer 3

No. Of workers

Question 4

Marginal product definition

Answer 4

The output produced by 1 extra worker
Change in total product
—————————
Change in variable input

Question 5

Law of diminishing returns

Answer 5

Occurs in the short run
As the number of employees increases, the marginal product of the extra employee will at some point be less than the MP of the previous employee. This is because workers are less efficient, output lowers and marginal costs rise

Question 6

Graph for AP/MP

Answer 6

‘n’ shaped

Marginal product begins higher than average product but cuts through

Question 7

Relationship between total product and marginal product

Answer 7

Total product peaks at the point marginal product = 0

Because 1 more worker beyond that point has a negative marginal product and therefore reduces the total product

Question 8

Relationship between AP/MP

Answer 8

Average product peaks when it intersects the marginal product curve

Question 9

Fixed costs definition + examples

Answer 9

Business expenses that do not vary directly with the level of output
E.g. Rent of buildings, with 1 or 10 desks in the office, the rent will remain constant

Question 10

Variable costs definition + example

Answer 10

They vary directly with output

E.g. Raw material costs or wages of part time staff

Question 11

Average variable costs =

Answer 11

Output

Question 12

Marginal costs

Answer 12

Change in total costs from increasing output by 1 extra unit

Question 13

When is total revenue maximised?

Answer 13

When marginal revenue = 0

Question 14

Lowest point on the LRAC curve =

Answer 14

Most productively efficient (MES, minimum efficient scale)

Question 15

Increasing returns to scale

Answer 15

= economies of scale

LRAC will be falling

Question 16

Constant returns to scale

Answer 16

LRAC will be constant

Question 17

Decreasing returns to scale

Answer 17

= diseconomies of scale

LRAC will be rising

Question 18

Internal/ external economies of scale

Answer 18

Internal = firms benefiting from lower production costs due to an improvement within the company
E.g. Bulk buying/ Henry fords production line

External = firms benefiting from lower production costs due to larger changes outside the company
E.g. Decrease in interest rates

Question 19

Technical economies of scale definition

Answer 19

Increase in specialist capital for firms as they increase in size. This lowers the average cost of production

Question 20

Marketing economies of scale definition

Answer 20

Large firms spend more on advertising, so the spending can be spread over the huge volume of sales

Question 21

Financial economies of scale definition

Answer 21

Larger firms have access to cheaper sources of finance (interest rates) as they offer more security- they have more fixed assets and are considered low risk

Question 22

Managerial economies of scale definition

Answer 22

Savings in administrative costs by splitting up jobs

E.g. Specialist managers

Question 23

Purchasing economies of scale definition

Answer 23

Buying in bulk can benefit large companies as they get a better discount

Question 24

Profit =

Answer 24

Output x price

Question 25

When does the max profit occur?

Answer 25

When MC= MR

Question 26

Dynamic efficiency definition + example

Answer 26

Spending within firms now, to benefit themselves in the the future
E.g. Virgin Atlantic spent £300,000,000 on Boeing plane

Question 27

Short run definition

Answer 27

A time where at least 1 factor of production is in fixed supply, usually capital

Question 28

Objectives of the firm?

Answer 28

To maximise profits, where MR = MC
Although different stakeholders might have different personal aims
E.g. The managers posh car might come before overall company profit

Question 29

4 different market structures?

Answer 29

1. Perfect competition
2. Monopoly
3. Oligopoly
4. Contestable markets

Question 30

Characteristics of perfect competition?

Answer 30

Infinite number of buyers/ sellers 
No barriers to entry/ exit 
Perfect knowledge
Price taker from the market
Identical products
Perfect resource mobility