Business Economics

Question 1

What is production?

Answer 1

Manufacturing something in order to sell it

Question 2

What is productivity?

Answer 2

The output per factor employed

Question 3

What is labour productivity?

Answer 3

The output per worker or output per hour worked

Question 4

What is specialisation?

Answer 4

When a person, firm or country focuses on a limited range of goods and services

Question 5

What is division of labour?

Answer 5

A type of specialisation where production is split into different tasks and specific people are allocated to each task

Question 6

What are the advantages of specialisation?

Answer 6

-People can specialise in what they do best, which leads to better quantity and quality of goods
- More efficient production
-Training costs are reduced

Question 7

Disadvantages of specialisation?

Answer 7

• Workers end up doing the same thing in repetition, can result in boredom
• Countries become less self-sufficient
• Lack of flexibility

Question 8

What is a firm?

Answer 8

Any sort of business organisation

Question 9

What is an industry?

Answer 9

A place where all firms provide similar goods & services

Question 10

What is the formula for profit?

Answer 10

Total revenues - Total costs

Question 11

What is the short run?

Answer 11

A period of time where at least one factor of production is fixed

Question 12

What is the long run?

Answer 12

A period of time where all factors of production are variable

Question 13

What is a fixed cost?

Answer 13

A cost that doesn’t vary with output, it must be paid even if the firm is producing nothing

Question 14

What is a variable cost?

Answer 14

A cost that varies with output, as output increases these costs increase

Question 15

What happens to all costs in the long run?

Answer 15

They all become variable costs

Question 16

What are total costs?

Answer 16

All the costs involved in producing at a particular level of output

Question 17

What is the formula for total costs?

Answer 17

Total costs = total fixed costs + total variable costs

Question 18

What is average cost?

Answer 18

The cost per unit produced

Question 19

What is the formula for average costs?

Answer 19

Average costs = Total costs/ Quantity

Question 20

What is the formula for average fixed costs?

Answer 20

Average fixed cost = Total fixed cost/ quantity

Question 21

What is the formula for average variable costs?

Answer 21

Average variable costs = Total variable costs/ quantity

Question 22

What is marginal cost?

Answer 22

The extra cost incurred as a result of producing an additional unit of output

Question 23

What are marginal costs affected by?

Answer 23

Variable costs

Question 24

Where does the lowest average cost occur?

Answer 24

When marginal cost = average cost

Question 25

What is marginal product?

Answer 25

The additional output produced by adding one more unit of a factor input

Question 26

What happens as marginal returns rise?

Answer 26

Marginal costs fall

Question 27

What happens as marginal returns fall?

Answer 27

Marginal costs rise

Question 28

How can productivity be improved?

Answer 28

- Through better management and training - Improved technology

Question 29

What are economies of scale?

Answer 29

The cost advantages of production on a large scale

Question 30

What are the types of internal economies of scale?

Answer 30

- Technical - Purchasing - Managerial - Financial - Risk-bearing - Marketing

Question 31

What are internal economies of scale?

Answer 31

Change that occur within a firm

Question 32

What are external economies of scale?

Answer 32

Change that occur outside of a firm

Question 33

What are diseconomies of scale?

Answer 33

The disadvantages of being big firms

Question 34

What are the diseconomies of scale?

Answer 34

- Communication - Control - Coordinate - Motivation

Question 35

What are increasing returns to scale?

Answer 35

When an increase in all factor inputs lead to a bigger overall increase in output

Question 36

What are constant returns to scale?

Answer 36

When an increase in all factor inputs lead to the same overall increase in output

Question 37

What are decreasing returns to scale?

Answer 37

When an increase in all factor inputs lead a less overall increase in output

Question 38

What are returns to scale?

Answer 38

How much output changes as input is changed

Question 39

What is minimum efficient scale of production?

Answer 39

The lowest level of output at which the minimum possible average cost can be achieved

Question 40

What is revenue?

Answer 40

The money a firm receives from selling their goods & services

Question 41

What is total revenue?

Answer 41

The total amount of money received in a period of time from a firm's sales

Question 42

What is the formula for total revenue?

Answer 42

Total revenue = total quantity x price

Question 43

What is average revenue?

Answer 43

The revenue per unit sold

Question 44

What is the formula for average revenue?

Answer 44

Average revenue = Total revenue / quantity sold

Question 45

What is marginal revenue?

Answer 45

The extra revenue received as a result of selling an additional unit of output

Question 46

What does the demand curve of a price taking firm look like?

Answer 46

Perfectly elastic (horizontal line)

Question 47

What is PED when total revenue is maximised?

Answer 47

PED = -1

Question 48

What is marginal returns at when total revenue is at its maximum?

Answer 48

MR = 0

Question 49

When does normal profit occur?

Answer 49

When total revenue = total costs

Question 50

When does supernormal profit occur?

Answer 50

When total revenue > total costs

Question 51

When can a firm continue to produce in the short - run?

Answer 51

When the firm's total revenue is greater than its total variable costs

Question 52

When is profit maximised?

Answer 52

When MC = MR

Question 53

What is the main objective of a firm?

Answer 53

To profit maximise

Question 54

When does a firm revenue maximise?

Answer 54

When MR = 0

Question 55

When does a firm sales maximimse?

Answer 55

When AR = AC