Costs & revenue. Economies & Diseconomies

Question 1

What is fixed costs

Answer 1

Costs incurred by the firm that do not vary with the level of output

Question 2

Examples if fixed costs

Answer 2

Rent Electricity Salary

Question 3

Variable costs

Answer 3

Costs incurred by the firm that do not vary with the level of output

Question 4

Examples variable costs

Answer 4

Wage Factors of production Raw materials

Question 5

Average total cost

Answer 5

The cost per unit of output Total cost/output

Question 6

Average fixed cost

Answer 6

Fixed costs per unit of output produced

Question 7

Average vaiable cost

Answer 7

Variable costs pet unit of output produced

Question 8

Marginal cost

Answer 8

The addition to total cost that results when on extra unit of output is produced Change in total cost/change in output

Question 9

Better workers

Answer 9

Increases in capital investment Better working conditions Improved education/training Higher wages More capital per worker

Question 10

Short run

Answer 10

The short-run in microeconomics can be defined as a time period in which at least one of the four factors of production is fixed.

Question 11

Long run

Answer 11

The long run in micro-economics can be defined as a time period in which the scale of all four factors of production can change.

Question 12

What is total costs?

Answer 12

Total costs of production is the sum of all the costs of producing a particular level of output. Total costs will always rise as a firm increase it’s output because increasing output requires more inputs, such as raw materials, labour and capital

Question 13

Definition of economies of scale

Answer 13

Where an increase in the scale of production leads to a reduction in long run average costs.

Question 14

Internal economies of scale

Answer 14

Economies of scale that arise from the expansion of the firm.

Question 15

External economies of scale

Answer 15

Economies of scale that arise from the expansion of the industry in which the firm is operating.

Question 16

Definition of diseconomies of scale

Answer 16

Where an increase in the scale of production leads to an increase in long run average costs.

Question 17

Internal diseconomies of scale

Answer 17

Diseconomies of scale that arise from an expansion of the industry in which is the firm is operating

Question 18

EOS GRAPH

Answer 18

The cost of every unit produced decreases due to growth in the industry

Question 19

DOS

Answer 19

The cost of every unit produced increases due to growth in the industry.

Question 20

Causes IEOS PURCHASING ECONOMIES

Answer 20

Bulk buying. Large firm with a high level of output can afford to buy it’s inputs. E.g. Fuel. Negotiate a discounted price. Reduces LT average costs.

Question 21

IEOS MANAGERIAL ECONOMIES

Answer 21

Mangers saltines are a fixed cost for businesses about out rises this fixed cost is spread over more units and average fixed costs fall. LT - beneficial

Question 22

IEOS TECHNICAL ECONOMIES

Answer 22

Economies of increased dimensions. Larger higher level output. Large vehicles. Reduced average fixed costs LT - beneficial

Question 23

IEOS OTHER TECH.

Answer 23

Advanced machinery. Mass production techniques. Raises productivity. Reduces LR costs.

Question 24

RISK BEARING ECONOMIES

Answer 24

Safer from Risk of failure Greater scope to make cutbacks.

Question 25

IDOS POOR COMMUNICATION

Answer 25

Fall in productivity Rise in LRAC

Question 26

Motivational DOS

Answer 26

Workers feel isolated Motivation/productivity decrease LRAC JNCREASE

Question 27

EEOS CONCENTRATION

Answer 27

Cooperate on research etc reducing long run costs. More availability.

Question 28

EEOS Economies of information

Answer 28

Industry blogs produced disseminate info. Reduce long run average costs.

Question 29

EDOS - congestion

Answer 29

Transport infrastructures become ingested leading to an increase in LR costs.

Question 30

EDOS RESOURCE COSTS

Answer 30

More expensive for resources. E.g. Cost of land rises

Question 31

Evaluation benefits of economies of scale

Answer 31

Lower unit costs

Business profits

More international, more employment, higher standard of living

Question 32

Evaluation drawbacks economies of scale

Answer 32

Demand lacking

Standardisation

businesses may dominate a market.

Question 33

Technical efficiency

Answer 33

Attaining the maximum possible output from a given set of inputs.

Question 34

Cost efficiency

Answer 34

The appropriate combination of inputs of factors of production given the relative prices of these factors.

Question 35

Total costs of production

Answer 35

Sum of all costs of producing at a particular output.

Question 36

Marginal Cost

Answer 36

the addition to total cost that results when on extra unit of output is produced.

Question 37

Marginal Cost equation

Answer 37

MC = Δ in total cost ——————— Δ in output

Question 38

type of graph

Answer 38

diseconomies of scale

Question 39

type of graph

Answer 39

internal

Question 40

Internal economies of scale causes

Answer 40

purchasing economies: bulk buying

Managerial economies: specialisation

Financial economies: borrow at lower rates

Technical economies: production process

Risk bearing economies: more diversified products less chance of failure.