Micro Book 4 Flashcards
Costs, Revenues, Profits, Production Process, Marginal Returns, Returns to Scale, Economies and Diseconomics of Scale, Technological Change, Creative Destruction, Objectives of Firms, Business Growth, Barriers to Entry and Contestable Markets (44 cards)
What are rent and advertising examples of?
Fixed costs
What are raw materials and packaging examples of?
Variable costs
How do you work out the Fixed Cost per Unit
Total fixed cost / the number of units of output produced
How do you work out the Total Variable Cost
Variable Cost per Unit * Number of Units of Output produced
How to work out Marginal Cost
Change in total cost / Change in output
How to work out Average Cost
Average Fixed Cost + Average Variable Cost
What is the difference between accounting profit and economic profit
Economists also take into account the opportunity cost from not using an alternative method
How to work out Total Revenue
Quantity Sold * Average Selling Price
How to work out Average Revenue
Total Revenue / Quantity Sold
What is normal profit
The amount of profit that covers the opportunity cost of the factors of production being used in this way
Any profit above normal profit is called?
Economic/Abnormal/Supernormal profit
What is the purpose of economic activity
To produce goods and services
When is the long run
When all factors of production are variable in quantity
When is the short run
When at least one factor of production is fixed in quantity
Why might diminishing marginal returns take effect
A lack of at least one factor of production results in a deficiency of others, (even when hiring more labour, a lack of capital will result in production not increasing)
What is Marginal Physical Product
The increase in Total Physical Product for each additional worker
What is returns to scale, in the long run
The effect on output of an increase in the scale of the whole business
Economies of scale are?
Reductions in a firm’s long-run average costs due to an increase in the scale of the firms operations (internal) or the growth of the industry (external)
What are Technical Economies of Scale and they internal or external?
Larger firms are able to use better machinery and production methods to lower their average production costs (internal)
What are Financial Economies of Scale and they internal or external?
Larger firms are seen as less risky therefore lenders are willing to lend to them at lower rates of interest so reduces the cost of borrowing (internal)
What are Managerial Economies of Scale and they internal or external?
Larger firms are able to employ specialist staff whilst one manager would have to do all specialist tasks in a small business (internal)
What are Commericial Economies of Scale and they internal or external?
A more efficient approach to buying and selling as they buy in bulk so a firm can take advantage of bulk discounts and bargaining power (internal)
What are Risk-Bearing Economies of Scale and they internal or external?
Large firms are able to spread the cost of failure aross further than a smaller firm (internal)
Why can economics of scale be considered external?
It results in the growth of the industry without being caused by the company
