MICRO - Unit 3

Question 1

When does short run production occur?

Answer 1

when a firm adds variable factors of production to fixed factors of production

Question 2

When does long run production occur?

Answer 2

when a firm changes the scale of all factors of production

Question 3

What is the calculation for productivity?

Answer 3

total output per period of time/ number of units of factors of production

Question 4

What is the calculation for labour productivity?

Answer 4

total output per period of time / number of units of labour

Question 5

What is productive efficiency?

Answer 5

occurs when an economy uses the minimum inputs to produce the maximum output at lowest cost.

Question 6

What is the calculation for average cost?

Answer 6

total cost / output

Question 7

On what type of graph can productive efficiency be shown on?

Answer 7

average cost curve diagram

Question 8

What is specialisation?

Answer 8

when economic units such as individuals, firms, regions or countries concentrate on producing specific goods or services

Question 9

What is division of labour?

Answer 9

Specialised use of workers within an organisation

Question 10

When do barters occur?

Answer 10

when goods and services are exchanged for other goods and services between two parties. This occurs without a medium of exchange such as money.

Question 11

What is a unit of account?

Answer 11

allows us to measure the value of goods and service in units

Question 12

What is the difference between the SR and LR?

Answer 12

in the SR at least one factor is fixed and cannot be varied

in LR no factors of production are fixed and all factors can be varied

Question 13

What type of costs does the SR have?

Answer 13

sunk costs

Question 14

What are sunk costs?

Answer 14

costs firm has already paid and are not recoverable if the firm wishes to leave the industry. They are unavoidable.

Question 15

What type of costs does the LR have?

Answer 15

prospective costs

Question 16

What are prospective costs?

Answer 16

costs firm will take into account when making an investment decision and are avoidable as they are based on the future

Question 17

What are economies of scales?

Answer 17

decreases in the average cost of production as the scale of production is increased

Question 18

What are fixed costs?

Answer 18

do not vary with output

Question 19

What are some examples of fixed costs?

Answer 19

machinery or marketing costs

Question 20

What are variable costs?

Answer 20

vary with output

Question 21

What is the calculation for total costs?

Answer 21

total fixed costs + total variable costs

Question 22

What is average costs?

Answer 22

average costs of producing a unit of output

Question 23

What shape is the average cost curve?

Answer 23

U-shaped

Question 24

What is the calculation for average costs?

Answer 24

total variable costs/ output

Question 25

Draw an economies of scale diagram

Answer 25

https://docs.google.com/presentation/d/1NpvlEDiaNfVNeBhfTERYve3AEHHzx5-uMcE2OyO59ak/edit#slide=id.g4603d61215_0_270

Question 26

What are relevant costs?

Answer 26

costs that are used to make decisions on an investment

Question 27

When do internal economies of scale occur?

Answer 27

occur due to an increase in the scale of production of a firm

Question 28

When do external economies of scale occur?

Answer 28

occur due to an increase in the scale of production within the industry in which the firm operates

Question 29

What are the different types of economies of scale?

Answer 29

managerial
technical
purchasing
financial

Question 30

What is purchasing economies of scale?

Answer 30

bulk buying - lowers units costs

Question 31

What is technical economies of scale?

Answer 31

use of specialist capital e.g machines

• more efficient
• lower unit costs
• increase competitiveness

Question 32

What is managerial economies of scale?

Answer 32

employing specialist labour

• division of labour allows staff to focus on specific areas
• better qualified
• more experience
• more efficient

Question 33

What are some examples of external economies of scale?

Answer 33

improved transport infrastructure
skilled workers
advanced communication systems

Question 34

What do external EOS cause?

Answer 34

positive externalities

Question 35

When do EOS occur?

Answer 35

occur when there is a fall in average total cost as the scale of production increases

Question 36

When do DOS occur?

Answer 36

occur when there is an increase in average total cost as the scale of production increases

Question 37

What are the types of DOS?

Answer 37

communication

coordination

Question 38

What is the communication DOS?

Answer 38

larger firms find it more difficult to communicate efficiently within the organisation.
- causes an increased cost for communication methods within the firm

Question 39

What is the coordination DOS?

Answer 39

larger firms find it more difficult to manage the increased number of personnel and customers
- might cause increasing in difficulty to delegate and motivate workers

Question 40

What is total revenue?

Answer 40

is money received by a firm from the sale of goods or services

Question 41

What is the calculation for total revenue?

Answer 41

TR = Q x P

Question 42

What is the calculation for average revenue?

Answer 42

AR = TR/Q

Question 43

What is profit?

Answer 43

the difference between total revenue and total costs

Question 44

What is the calculation for profit?

Answer 44

TR-TC

Question 45

What is normal profit?

Answer 45

is that level of profit required for a firm to maintain operations

Question 46

What is supernormal profit?

Answer 46

is that level of profit over and above normal profit

Question 47

When does supernormal profit occur?

Answer 47

where AR>AC