2.6 Production Flashcards
What three groups can be producers?
- Individuals
- Firms
- Governments
What is the role of producers?
They are part of the supply aspect and aim to make a profit. They employ workers and pay wages.
How can individuals be producers? Give examples.
They can be producers of non-market goods such as cooking or cleaning. They can also be self-employed, for example being a plumber.
How can firms be producers?
Firms may sell locally or internationally. Smaller firms are usually in competitive markets, whereas larger firms may be monopolies or oligopolies (and have more power over the market).
How can governments be producers? Give examples.
The government is responsible for services such as defence, public transport and education. Some of these sectors are privatised, but some are not willing to pay.
What is production?
The total output of goods and services produced by a firm or industry in a period of time. It involves the use of factors of production.
What are the advantages of an increase in production?
- Increase in employment
- Increased profits and market share
- Rise in standard of living as there is more to buy
- Can gain larger economies of scale
- Economic growth in country
What are disadvantages of an increase in production?
- Workers may be replaced with machines
- Workers who are replaced will have a lower standard of living
- Average costs may rise leading to diseconomies of scale
- Environmental problems
What is productivity?
It is a measure of efficiency in terms of output per unit of input.
How do you calculate productivity?
Total output ÷ Total input
How can productivity be increased?
- Workers can specialise
- Improving skills through education and training
- Investment in new technology and capital equipment
Why is high productivity important for firms?
Higher productivity will result in lower average costs, so firms can gain economies of scale and become more competitive. It also increases profits, leading to better training and more investment for the firm.
Why is high productivity important for governments?
High productivity increases total output in the economy, leading to higher economic growth. The government can also gain tax revenue from higher employment and wages due to firms expanding.
What are the costs of productivity?
There could be an increase in unemployment as workers are replaced by machines. This will also rise government spending on welfare benefits. The greater international competitiveness could lead to fall in GDP if countries retaliate.
What is meant by total costs?
All the costs of a firm added together.
How do you calculate total costs?
Total costs = total fixed costs + total variable costs
TC = TFC + TVC
What is a fixed cost? Give two examples.
Fixed costs remain the same regardless of output levels and are usually based on time, such as rent and utility bills.
What is a variable cost? Give two examples.
Variable costs are costs that change as output changes. These can be raw materials and worker wages.
What is average cost and what does it show?
It is the cost of producing a unit of output. A fall in average costs leads to economies of scale and shows the firm is becoming more efficient.
How can you calculate average costs?
Average cost = total costs ÷ quantity
AC = TC ÷ Q
What does total revenue mean?
The total income of a firm from the sale of its goods and services.
How do you calculate total revenue?
Total revenue = price of product × quantity sold
TR = P × Q
What is average revenue?
It is the revenue per unit sold and is equal to the price.
How do you calculate average revenue?
Average revenue = total revenue ÷ quantity
AR = TR ÷ Q
