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A Level Economics > 4. Production, costs and revenue > Flashcards

4. Production, costs and revenue Flashcards

1
Q

What is production?

A

Converts inputs or factor services into outputs of goods and services

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2
Q

What are the factors of production?

A

Inputs into the production process, such as land, labour, capital and enterprise

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3
Q

What is a productivity gap?

A

The difference between labour productivity, e.g. in the UK and in other developed economies

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4
Q

What is productivity?

A

Output per unit of input

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5
Q

What is labour productivity?

A

Output per worker

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6
Q

What is capital productivity?

A

Output per unit of capital

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7
Q

What is a firm?

A

A productive organisation which sells its output of goods and/or services commercially

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8
Q

What is the key concept in the short-run production theory?

A

The law of diminishing returns, also known as the law of diminishing marginal productivity

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9
Q

What is specialisation?

A

A worker only performing one task or a narrow range of tasks. Also, different firms specialising in producing different goods or services

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10
Q

What is the division of labour?

A

The concept goes hand in hand with specialisation. Different workers perform different tasks in the course of producing a good or service

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11
Q

What is trade?

A

The buying and selling of goods and/or services

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12
Q

What is exchange?

A

To give something in return for something else received. Money is a medium of exchange

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13
Q

What are marginal returns of labour?

A

The change in the quantity of total output resulting from the employment of one more worker, holding all the other factors of production fixed

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14
Q

What is the law of diminishing marginal returns (also known as the law of diminishing marginal productivity)?

A

A short-term law which states that as a variable factor of production is added to a fixed factor of production, both the marginal and eventually the average returns to the variable factor will begin to fall

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15
Q

What are total returns?

A

The whole output produced by all the factors of production, including labour, employed by a firm

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16
Q

What are the average returns of labour?

A

Total output divided by the total number of workers employed

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17
Q

What are returns to scale?

A

The rate by which output changes if the scale of all the factors of production is changed

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18
Q

What is a plant?

A

An establishment, such as a factory, a workshop or a retail outlet, owned and operated by a firm

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19
Q

What are the increasing returns to scale?

A

When the scale of all the factors of production employed increases, output increases at a faster rate

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20
Q

What are the constant returns to scale?

A

When the scale of all the factors of production employed increases, output increases at the same rate

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21
Q

What are the decreasing returns to scale?

A

When the scale of all the factors of production employed increases, output increases at a slower rate

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22
Q

What is the key concept in short-run production theory?

A

The law of diminishing returns

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23
Q

What is the law that states what happens as a variable factor of production is added to a fixed factor of production?

A

That eventually both the marginal returns and then the average returns to the variable factor of production begin to fall

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24
Q

What is fixed cost?

A

The cost of production which, in the short run, does not change with output

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25
Q

What is variable cost?

A

The cost of production which changes with the amount that is produced, even in the short run

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26
Q

What is total cost?

A

All the cost incurred when producing a particular size of output

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27
Q

What is average variable cost?

A

Total variable cost divided by the size of output

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28
Q

What is marginal cost?

A

Addition to total cost resulting from producing one additional unit of output

29
Q

What are average fixed costs?

A

The total cost of employing the fixed factors of production to produce a particular level of output, divided by the size of output

30
Q

What are average total costs (average cost)?

A

The total cost of producing a particular level of output, divided by the size of output

31
Q

Where are the short-run and long-run cost curves derive from?

A

Short/long-run production theory

32
Q

What are short-run costs made up of?

A

Fixed costs and variable costs

33
Q

What are economies of scale?

A

As output increases, long-run average cost falls

34
Q

What are diseconomies of scale?

A

As output increases, long-run average cost rises

35
Q

What are the internal economies and diseconomies of scale?

A

Changes in long-run average costs of production resulting from changes in the size or scale of a firm or plant

36
Q

What is external economy of scale?

A

A fall in long-run average costs of production resulting from the growth of the market or industry of which the firm is a part

37
Q

What is external diseconomy of scale?

A

An increase in long-run average costs of production resulting from the growth of the market or industry of which the firm is a part

38
Q

What can technical economies of scale be caused by?

A

Indivisibilities, the spreading of research and development costs, volume economies, economies of massed resources, economies of vertically linked processes

39
Q

What are some of the various types of economies of scale?

A

Technical, managerial and finance-raising economies

40
Q

What are some of the various types of diseconomies of scale?

A

Communicational failure and motivational diseconomy of scale

41
Q

In cost theory what are economies and diseconomies of scale often respectively caused by?

A

Increasing and decreasing returns to scale (in production theory)

42
Q

What is total revenue?

A

All the money received by a firm from selling its total output

43
Q

What is average revenue?

A

Total revenue divided by output

44
Q

What is marginal revenue?

A

Addition to total revenue resulting from the sale of one more unit of the product

45
Q

What is perfect competition?

A

A market that displays the six conditions of: a large number of buyers and sellers; perfect market information; the ability to buy or sell as much is desired at the ruling market price; the inability of an individual buyer or seller to influence the market price; a uniform or homogeneous product; and no barriers to entry or exit in the long run

46
Q

What is a monopoly?

A

One firm only in a market

47
Q

When do marginal and average curves plotted from the same set of data always display the following relationship?

A
  • When the marginal is greater than the average, the average rises
  • When the marginal is less than the average, the average falls
  • When the marginal equals the average, the average is constant, neither rising nor falling
48
Q

What is a price-taker?

A

A firm which is so small that it has to accept the ruling market price. If the firm raises its price, it loses all its sales; if it cuts its price, it gains no advantage

49
Q

What is a price-maker?

A

When a firm faces a downward-sloping demand curve for its product, it possesses the market power to set the price at which it sells the product

50
Q

What is a quantity-setter?

A

When a firm faces a downward-sloping demand curve for its product, it possesses the market power to set the quantity of the good it wishes to sell

51
Q

What is revenue?

A

The money that a firm earns when selling its output

52
Q

What does the nature of a firm’s revenue curves depend on?

A

The competitiveness of the market struvture in which the firm sells its output

53
Q

In perfect competition, what are the average and marginal revenue curves like?

A

Horizontal

54
Q

In monopoly where do the average revenue curve and the marginal revenue curve?

A

The average revenue curve slopes downward and the marginal revenue curve below the average revenue curve

55
Q

What is normal profit?

A

The minimum profit s firm must make to stay in business, which is, however, insufficient to attract new firms into the market

56
Q

What is profit?

A

The difference between total sales revenue and total cost of production

57
Q

What is profit maximisation?

A

Occurs at the level of output at which total profit is greatest

58
Q

What is abnormal profit (also known as supernormal profit and above-normal profit)?

A

Profit over and above normal profit

59
Q

What are the roles in a market economy?

A

Creating incentives, rewarding innovation and risk taking

60
Q

What is technological change?

A

A term used to describe the overall effect of invention, innovation and the diffusion or spread of technology in the economy

61
Q

What is invention?

A

Making something entirely new; something that did not exist before at all

62
Q

What is innovation?

A

Improves on or makes a significant contribution to something that has already been invented, thereby turning the results of invention into a product

63
Q

What is productive efficiency?

A

For the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the average total cost of production is minimised

64
Q

What is dynamic efficiency?

A

Measures improvements in productive efficiency that occur in the long run over time

65
Q

What is monopolistic competition?

A

A market structure in which firms have many competitors, but each one sells a slightly different product

66
Q

What is duopoly?

A

Two firms only in a market

67
Q

What is creative destruction?

A

Capitalism evolving and renewing itself over time through new technologies and innovations replacing older technologies and innovations

68
Q

What is technical progress?

A

Applying scientific and engineering knowledge, as it develops, to produce goods which are more efficient and work better

69
Q

What is creative destruction?

A

A process through which capitalism evolves and renews itself over time through new technologies and innovations replacing older technologies and innovations

A Level Economics (16 decks)

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