Production, Cost And Revenue Flashcards
What is production?
Production is turning inputs (e.g. labour and capital) into outputs (e.g. finished product).
What is productivity?
Productivity measures how efficiently a factor of production turns inputs into outputs.
Productivity measures output per worker
What is the equation for productivity?
Labour productivity equals: the total output divided by the number of workers
What is specialisation?
Specialisation occurs when different firms/countries/factors of production concentrate on production of different goods and/or services
What is division of labour?
It is the specialisation of the factors of production labour - the assignment of different parts of the manufacturing process to different people to improve efficiency, as workers are experts in their tasks, wasting less time switching
Why is money important?
Money acts as a medium of exchange. This allows goods and services to be traded without the need for the barter system, which rely on their being ‘double coincidence’ (when someone has what you want and they want what you have) in an exchange
What are the costs of production?
In short run costs of production - at least one factor of production cannot change - so there are some fixed costs
In long run costs of production - all factor inputs can change, so all costs are variable
What are fixed costs?
Costs of production that do not vary with levels of output (e.g. rent, taxes, insurance)
what are variable costs?
Costs of production that do vary with output (e.g. packaging, raw materials, etc)
What are total costs?
Total costs are the total of fixed costs and variable costs added together
What are average costs?
Average of how much it costs to make 1 unit of output
- average fixed costs = total FC divided by quantity
- average variable costs = total VC divided by quantity
- average total costs = TC divided by quantity
What are marginal costs?
Costs of producing 1 extra unit
- marginal costs = change in costs divided by change in quantity
What is revenue?
Money coming in
- TR = P x Q
What is profit?
Money left over after paying total costs
- TR - TC = profit/loss
Profit occurs when revenue is greater than costs
What is breakeven?
When revenue and costs are equal
