4.1.4 production costs and revenues

Question 1

what is production

Answer 1

converts inputs or the services of factors of production such as capital and labour, into final inputs- goods and services

Question 2

define productivity

Answer 2

output per unit of input

Question 3

define labour productivity

Answer 3

output per worker

Question 4

define specialisation

Answer 4

the concentration of production on a narrow range of goods and services

Question 5

5 advantages of specialisation

Answer 5

efficient production, exports, growth
wider range of goods (eg Dyson)
allocative efficiency
increased productivity
increased quality

Question 6

4 disadvantages of specialisation

Answer 6

if finite resources used up, firm could shut
change in tastes could lead to firm shutting
deindustrialisation
national interdependence

Question 7

define division of labour

Answer 7

breaking down the production process into seperate tasks upon specialisation

Question 8

3 advantages of specialisation of workers

Answer 8

more productive workers decreasing costs
specialist capital can be used
lower prices, increased quality

Question 9

4 disadvantages of specialisation of workers

Answer 9

demotivation of workers
high worker turonover
risk of LT unemployment from tech advances
standardised goods and services

Question 10

define trade

Answer 10

buying or selling of goods and services

Question 11

define exchange

Answer 11

to give something in return for something else recieved
money is the medium of exchange

Question 12

why is exchange necessary when specialising

Answer 12

so people can consume outside of their specialisation

Question 13

define the short run (micro)

Answer 13

scale of production is fixed
at least one fixed cost

Question 14

define the long run (micro)

Answer 14

scale of production is flexible
all costs are variable

Question 15

marginal returns

Answer 15

the extra output gained from one extra unit of input/factor employed

Question 16

average return

Answer 16

output per unit of input

Question 17

total returns

Answer 17

total output produced by a number of factors

Question 18

what is the law of diminishing returns

Answer 18

in the short run when variable factors (labour) are added to a stock of fixed factors (land) total and marginal product will initially rise and then fall

Question 19

when is total product maxed
when marginal product…

Answer 19

equals zero

Question 20

returns to scale

Answer 20

change in output of a firm in response to a change in factor inputs

Question 21

constant returns to scale

Answer 21

output rises by same amount as input

Question 21

increasing returns to scale

Answer 21

output rises by a greater proportion than to the increase in inputs

Question 22

decreasing returns to scale

Answer 22

output rises by less than input has risen

Question 23

fixed costs

Answer 23

costs do not vary with output
eg rent

Question 24

variable costs

Answer 24

change with output eg raw materials

Question 25

marginal costs

Answer 25

cost of producing one extra unit

Question 26

average cost

Answer 26

cost per unit total cost/quantity

Question 27

total costs

Answer 27

total variable costs + total fixed costs

Question 28

short run costs

Answer 28

fixed and variable factors

Question 29

long run costs

Answer 29

all factors of production are fixed

Question 30

if factors inputs become more productive what happens to cost of production

Answer 30

decreases

Question 31

if average costs per unit of a factor (eg labour) increases what will firms do

Answer 31

switch to cheaper inputs (eg capital)

Question 32

explain shape of marginal cost

Answer 32

initially decreases due to increased specialisation then increases due to diminishing returns

Question 33

explain shape of average cost

Answer 33

reflects economies and diseconomies of scale U shape

Question 34

explain shape of total cost

Answer 34

steady rise due to total fixed costs decreasing output

Question 35

define economies of scale

Answer 35

cost advantages a firm gains from increasing output

Question 36

define internal economies of scale

Answer 36

when a firm becomes larger, average cost of production falls as output increases

Question 37

types of internal economies of scale (6)

Answer 37

risk bearing financial managerial technological marketing purchasing

Question 38

risk bearing economies of scale

Answer 38

can expand a production range as they have more to fall back on

Question 39

financial economies of scale

Answer 39

banks are more willing to lend loans to larger firms

Question 40

managerial economies of scale

Answer 40

larger firms are more able to specialise which decreases cost of production

Question 41

technological economies of scale

Answer 41

larger firms can afford to invest in productive capital

Question 42

marketing economies of scale

Answer 42

larger firms can divide their marketing budget across output

Question 43

purchasing economies of scale

Answer 43

larger firms can bulk buy which is cheaper

Question 44

define external economies of scale

Answer 44

cost advantages for multiple firms

Question 45

infrastructure external economies of scale

Answer 45

transport services can decrease cost of production

Question 46

knowledge/labour pool external economies of scale

Answer 46

concentration of labour and knowledge sharing can incraese productivity and drive down costs of production

Question 47

supplier network external economies of scale

Answer 47

clusters of related businesses can lead to a strong supplier network

Question 48

real example of external economies of scale

Answer 48

Media City- Salford

Question 49

define diseconomies of scale

Answer 49

output passes a certain point and average cost starts to increase

Question 50

reasons for diseconomies of scale (3)- explained

Answer 50

control: becomes harder to monitor workforce productivity as firm becomes larger coordination: harder to coordinate workers to tasks when there are more communication: workers may feel alienated leading to demotivation and decreased productivity which will increase costs

Question 51

what occurs at minimum point on LRAC curve

Answer 51

minimum efficient scale optimum levcels of output and economies of scale have been utilised

Question 52

explain the shape of the L shaped average cost curve

Answer 52

to begin with, cost per unit falls as output increases due to economies of scale even if their are disceonomies of scale (managerial) these are offset by tecnological/purchasing/etc economies of scale and therefore in LR costs continue to fall even in they are falling at a slower rate

Question 53

define total revenue

Answer 53

revenue gained from the sale of a given quantity

Question 54

how do you calculate TR

Answer 54

price x quantity

Question 55

define average revenue

Answer 55

average receipt per unit it is equal to the price

Question 56

how do you calculate TR

Answer 56

AR X Q

Question 57

define marginal revenue

Answer 57

extra revenue earned from the sale of one extra unit

Question 58

why is the AR curve the firms demand curve

Answer 58

AR is the price of the good when firms are price takers it is completely horizontal

Question 59

calculate MR

Answer 59

change in TR/change in quantity

Question 60

define profit

Answer 60

differnce between TR and TC

Question 61

define normal profit

Answer 61

minimum reward required to keep entreupeners supplying the enterprise when TR=TC profit is zero

Question 62

define supernormal profit

Answer 62

when TR>TC exceeds the value of opp cost when investing funds into the firm

Question 63

role of profit in free market economy

Answer 63

rewards entreperunes when taking risks and investing can be retaiend by firms and reinvested which is cheaper than dealing with IR when borrowinh acts as a signal for firms and consumers

Question 64

invention

Answer 64

the process of creating a new product or new way to make a product

Question 65

innovation

Answer 65

improving or contributing to existing products

Question 66

technological change impact on efficiency and productivity

Answer 66

increases efficiency and productivity

Question 67

technological change can lead to the...

Answer 67

development of new products, new markets and may destroy existing markets

Question 68

explain creative destruction

Answer 68

by Joeseph Schuempter new entreuprenurs are innovative which challenges existing firms, the more productive firms grow and the least productive firms are forced to leave the market this leads to an overall expansion of the economies PPF

Question 69

innovation in monopolies

Answer 69

monopolies do not have incentive to innovate as they have no competition, meaning they are often inefficient and costs arre higher than they could be

Question 70

innovation in oligopolies

Answer 70

oligopolies have more incentive (than monopolies) to innovate, since they are earning supernormal profit and are trying to get ahead of there competitors thus technological change is fast in oligopolies