Production, costs and revenues Flashcards
STUDY
What is production?
The process of converting inputs (CELL) into outputs
What is productivity?
The output per unit of input per period of time. This can be applied to labour or capital
What is specialisation?
When an individual or group is specialised to a specific task or range of tasks
What is division of labour?
Different workers performing specific tasks in the production process
What are the four main functions of money?
A medium of exchange, a store of value, a measure of value, and a means of deferred payment
Short run vs long run costs of production
In the short run, at least one factor of production cannot change, meaning there are some fixed costs.
In the long run, all factors of production can change, meaning there are no fixed costs (all costs are variable).
Fixed costs are costs which…
…do not vary with output
Variable costs are costs which…
…vary with output
What shapes are the average cost curves and why?
The SRAC curve is U shaped due to diminishing returns.
The LRAC curve is also U shaped, where average costs initally fall as output increases (due to economies of scale), and then after the point of most efficiency, average costs rise as output increases (due to diseconomies of scale).
When do economies and diseconomies of scale occur?
Economies of scale occur when average costs fall and output rises, while diseconomies of scale occur when average costs rise as output rises.
What are the internal economies of scale?
What are examples?
Internal economies of scale are economies of scale gained by a firm as it grows.
Examples include: Risk-bearing, Financial, Managerial, Marketing, Purchasing, Technological, and Networking
What are external economies of scale?
Name some examples.
External economies of scale occur in the industry as a whole.
Examples include: Improvements in infrastructure, better training and education, R&D
What are examples of diseconomies of scale?
Miscommunication leading to demotivation of workers, harder to control workers, lack of coordination.
How do you calculate total revnue?
Price x quantity sold
How do you calculate average revnue?
Total revenue divided by quantity sold (this is the price of the product).
