Microeconomics Topic 3 YR1 Flashcards
(40 cards)
What is production in economics?
Production is the process of combining inputs (factors of production) to create goods or services.
How is production measured
Production is measured as the total output of goods or services produced by a firm or industry.
What is productivity in economics?
Productivity measures efficiency as output per unit of input over a period of time.
What is the formula for labour productivity?
Labour productivity formula: Total Output / Number of Workers (or hours worked).
What is capital productivity?
Capital productivity refers to output per unit of capital employed.
Why is productivity important?
Higher productivity leads to lower average costs, increased competitiveness, higher wages, and economic growth.
List the factors influencing productivity.
Investment in technology, education and training, specialisation and division of labour, economies of scale, and management practices.
Name four factors of production.
Land, Labour, Capital and enterprise.
Define short-run production.
Short-run production occurs when at least one factor of production is fixed (usually capital).
Define long-run production.
Long-run production occurs when all factors of production are variable, allowing firms to change the scale of production.
Explain the law of diminishing returns.
In the short run, as additional units of a variable factor (e.g., labour) are added to a fixed factor, the marginal output eventually declines.
What are fixed costs (FC)?
Costs that do not change with the level of output, such as rent and salaries.
What are variable costs (VC)?
Costs that change directly with the level of output, such as raw materials.
What is the formula for total costs (TC)?
Total costs (TC) = Fixed Costs (FC) + Variable Costs (VC).
Give the formula of Average Costs (AC).
Average Costs (AC) = Total costs (TC) / Quantity (Q)
What is the marginal costs (MC) and how is it calculated?
Marginal Cost (MC) is the cost of producing on more unit. MC = Change in total costs (△TC) / Change in Quantity (△Q)
Describe the relationship between marginal cost (MC) and average cost (AC).
MC intersects AC at AC’s minimum point. When MC is less than AC, AC decreases. When MC is greater than AC, AC increases.
What are economies of scale?
Cost advantages due to increased production scale.
What are internal economies of scale?
Internal economies of scale are cost savings that occur within a firm.
Provide examples of internal economies of scale.
Examples: Technical economies (e.g., larger machinery reduces costs), purchasing economies (e.g., bulk- buying discounts).
What are external economies of scale?
External economies of scale are cost savings that occur within an industry, such as industry growth leading to a skilled labour pool.
What are diseconomies of scale?
Rising average costs due to inefficiencies at larger scales.
List causes of diseconomies of scale.
Communication breakdowns, loss of control and coordination, and worker alienation.
What is total revenue (TR) and its formula?
Total Revenue (TR) = Price (P) x Quantity (Q).
