4.1.4

Question 1

define production

Answer 1

total output produced by ab individual/firm

Question 2

what’s production function?

Answer 2

shows relationship between quantity of inputs and outputs

Question 3

define productivity

Answer 3

measure of the rate of production by 1 or more factors of production

Question 4

define long run (law of diminishing returns)

Answer 4

all factors of production are freely available to get hold of

Question 5

define short run (law of diminishing returns)

Answer 5

at least 1 factor of production you can’t get more of

Question 6

define marginal returns (of labour)

Answer 6

amount of input per 1 extra unit of labour

Question 7

define average returns (of labour)

Answer 7

output per unit of inputs

output / no. inputs

Question 8

define total returns (of labour)

Answer 8

total output produced by a no of units over a period of time

Question 9

state the law of diminishing returns

Answer 9

as you add successive units of a variable factor to a fixed factor of production
output increases by progressively smaller amounts
CHECK GRAPH IN NOTES

Question 10

define specialisation

Answer 10

concentrating on what you do best

individual/regional/national levels

Question 11

examples of specialisation

Answer 11

producing more than you need

selling excess product and buying other goods you need

Question 12

define division of labour

Answer 12

breaking down a production process into a series of smaller tasks with individual workers performing 1 particular task
(type of specialisation)

Question 13

adv. of specialisation

Answer 13

• factors of prod. used more productively
• over time labour becomes experienced + workers
  develop skills that increase productivity
• firms can invest in capital good relevant to their
  industry which increases labour productivity

Question 14

define capital goods

Answer 14

goods used to produce other goods rather than being bought by consumers

Question 15

disadv. of specialisation

Answer 15

• change in consumer demand can leave firms/economy
  with unwanted output -> unprofitable labour + capital
• structural employment -> workers only have skills in
  their field + no training in others so cant find a new job
  elsewhere
• countries specialising in high profit industries have strong currencies -> economy becomes vunerable

Question 16

define returns to scale

Answer 16

ratio concerning quantity of inputs + outputs

Question 17

give an example of increasing returns to scale

Answer 17

input increases by 10%

output increases by 15%

Question 18

define fixed cost

Answer 18

don’t change as the level of output changes

Question 19

define variable costs

Answer 19

change as level of output changes

Question 20

define semi-variable costs

Answer 20

costs with a fixed component

and a variable component that fluctuates

Question 21

examples of semi-variable costs

Answer 21

gas/utility bill

telephone bill

Question 22

total costs equation?

Answer 22

total costs = variable costs + fixed costs
CHECK GRAPH IN NOTES
!

Question 23

how to work out marginal cost

Answer 23

difference between the variable cost values

Question 24

average fixed costs equation?

Answer 24

AFC = fixed costs / output

Question 25

average total costs equation?

Answer 25

ATC = total costs / output

Question 26

explain internal economies of scale

Answer 26

larger firms can benefit from lower average costs | this improves their ability to compete in their market place

Question 27

explain external economies of scale

Answer 27

larger firms benefit from lower costs but benefits available to competitors in the same industry (unit cost per output reduced -> firms share cost)

Question 28

explain technical economies of scale | INTERNAL

Answer 28

resources/equipment larger firms benefit from: -expensive capital equip. -> reduces av. costs + high quality products so higher demand -specialisation of labour -> better productivity -research + development -> more likely to introduce new processes to improve products

Question 29

explain financial economies of scale | INTERNAL

Answer 29

cheaper for larger firms to access finance as they have lower risk than small firms find it easier to get loans/overdraft

Question 30

explain purchasing economies of scale | INTERNAL

Answer 30

greater output = materials can be bought in bulk at low cost large firms can use size to bargain with suppliers suppliers rely on them to buy their products

Question 31

explain marketing economies of scale | INTERNAL

Answer 31

costs like advertising can be spread over more units of output if a firm produces on a large scale so ad campaigns = more effective for larger firms

Question 32

explain risk baring economies of scale | INTERNAL

Answer 32

large firms often diversify into diff products + markets can ensure they have the right choice of suppliers helps protect firms from sudden change e.g. fall in demand or liquidation of a supplier

Question 33

explain managerial economies of scale | INTERNAL

Answer 33

large firms can employ specialist managers -> benefit from division of labour large firms have high salaries to attr. best managers

Question 34

explain specialist firms + infrastructure | EXTERNAL

Answer 34

firms tend to locate where an industry is located

Question 35

explain training + education | EXTERNAL

Answer 35

local college/uni offer courses suited to local community | helps all firms involved

Question 36

explain reputation | EXTERNAL

Answer 36

city/area gains excellent reputation for the provision of a certain good/service

Question 37

why do dis-economies of scale occur?

Answer 37

firm/industry gets larger so more problems appear | leads to higher average costs of production

Question 38

EXAMPLES OF DIS-ECONOMIES OF SCALE

Answer 38

*CHECK NOTES*

Question 39

define economies of scale

Answer 39

factors that cause average costs to fall as output rises *CHECK NOTES FOR GRAPH*

Question 40

total revenue equation?

Answer 40

price x quantity

Question 41

average revenue equation?

Answer 41

(price x quantity) / quantity

Question 42

marginal revenue equation?

Answer 42

change in total revenue / change in quality

Question 43

define marginal revenue

Answer 43

increase in total revenue from selling 1 more unit of the product

Question 44

average variable costs equation?

Answer 44

average total costs - average fixed costs

Question 45

define invention

Answer 45

designing a new product/process

Question 46

define innovation

Answer 46

developing the product until it's saleable

Question 47

what can technology changes affect?

Answer 47

methods of production productivity efficiency firm's cost of production

Question 48

what can technology changes lead to?

Answer 48

new products new markets can destroy existing markets can change market structure -> one firm can dominate (monopoly)

Question 49

profit equation?

Answer 49

profit = total revenue - total costs

Question 50

define normal profit

Answer 50

amount of profit needed to keep factors of production in their current employment

Question 51

define abnormal profit

Answer 51

extra profit on top of normal profit

Question 52

define super-normal profit

Answer 52

abnormal profit that only exists in the short run

Question 53

state 2 uses of proft

Answer 53

re-invested | given as dividends to share holders/owners