Business economics Flashcards
(43 cards)
Total profit calculation
Total revenue - Total costs
What is the main objective of a firm?
To make profit
How does a firm achieve more profit?
Increasing revenue or decreasing costs
How to increase revenue?
- Increase productivity
- Specialisation
- Division of labour
What are the pros of specialisation?
- Increased efficiency
- Increase expertise, no time wasted
- Less time training multiple skills
- Can solve the problem of scarcity, resources being used more efficiently, more output produced per unit of input
What are the cons of specialisation?
Workers may become bored
Total revenue calculation
Price x quantity sold
Total cost calculation
Fixed costs + variable costs
What are fixed costs + examples?
Costs that remain constant regardless of the level of output.. e.g Rent, loan repayments, fixed salary costs and marketing
What are variable costs + examples?
Costs that change with output e.g Packaging, energy and fuel costs, raw materials, commission bonuses
What is the equation for average variable costs?
Total variable costs/output
What does the fixed costs curve look like?
Flat
What does the variable costs curve look like?
45 degrees
What is the short run?
Amount of time by which at least 1 factor of production is fixed
What is the long run?
Amount of time whereby all factors can be varied
What are the 4 factors of production?
Land, labour, capital and enterprise
Equations for:
- Average cost
- Average variable cost
- Average fixed cost
- Marginal cost
- average total cost
Average cost = Total cost/output
Average variable cost = Total variable cost/output
Average fixed cost = Total fixed cost/output
Marginal cost = Change in total cost/change in output
Average total cost = average variable cost + average fixed cost
What is the marginal cost?
The cost to produce one more unit
What does the graph of AC and MC look like (draw it)?
- Costs on Y axis
- Output on X axis
- MC initially decreases then increases
- AC decreases then decreases, hitting the MC curve at the lowest AC
What are the benefits of specialisation?
- It can help with the problem of scarcity, if more resources are used efficiently, more output can be produced per unit of input
- Training costs are limited as workers are only trained to perform simple tasks
- Better quality and higher quantity of products for the same amount of effort overall - i.e. increased labour productivity
What are the disadvantages of specialisation?
- Workers can do repetitive tasks which can lead to boredom
- Countries can become less self sufficient and Over reliant. For example if a country specialises in manufacturing and imports all of its fuel, it could be in trouble if it falls out with its fuel supplier
- Lack of flexibility and can lead to structural unemployment, for example if companies move elsewhere then the workforce left behind could find it difficult to adapt
What are the 4 functions of money?
- Medium of exchange
- A measure of value
- A store of value
- A standard (or method) of deferred payment
Why does the marginal cost curve initially decrease and then begin to increase in the short run?
The law of diminishing returns, so the MC curve is always U shaped
What is the law of diminishing marginal returns?
As the level of a variable factor input is increased, marginal product (or marginal returns) will eventually begin to diminish
