1.3 Production, costs and revenue

Question 1

Fixed costs

Answer 1

Doesn’t change with output (rent)

Question 2

Variable costs

Answer 2

Varies directly with output (resources)

Question 3

Total variable cost

Answer 3

VC per unit x units made

Question 4

Short run

Answer 4

At least one FoP fixed (size of kitchen)

Question 5

Long run

Answer 5

All FoP are variable

Question 6

Specialisation

Answer 6

Expertise in a specific skill

Question 7

Division of labour

Answer 7

Separate tasks that make up production
(each task is specialised)

Question 8

Pros and cons of specialisation

Answer 8

Pros: Lower avg cost
Better quality
More productivity

Cons: May be a small or temporary market
Inflexible
Interdependence

Question 9

Economies of scale

Answer 9

Falling avg cost as output increases

Question 10

How is internal EoS achieved

Answer 10

Tony’s Mother Found My Rabbit
Technical/production
Marketing/purchasing
Financial
Managerial
Risk-bearing

Question 11

External economies of scale

Answer 11

Benefit the whole industry

Question 12

Diseconomy of scale

Answer 12

Avg cost rises as output increases

Question 13

How does a DEoS happen

Answer 13

Lack of:
Control
Communication
Coordination
Co-operation

Question 14

Growth clusters

Answer 14

When firms locate near eachother to receive benefits from external EoS

Question 15

Labour productivity

Answer 15

Output per worker per hour

Question 16

Capital intensity

Answer 16

Percent of investment in fixed capital, results in higher labour productivity

Question 17

Capital deepening

Answer 17

Increasing the proportion of capital to labour