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MICROECONOMICS REVISION > Production, Costs and Revenue > Flashcards

Production, Costs and Revenue Flashcards

(70 cards)

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1
Q

production?

A
  • the total output of goods and services produced by firms

- process of converting inputs into output

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2
Q

productivity?

A
  • measurement of the rate of production by various FoP

- measure of how efficiently you are generating output

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3
Q

productivity equation:

A

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

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4
Q

labour productivity?

A

output per worker per unit of time

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5
Q

labour productivity equation?

A

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

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6
Q

specialisation?

A

individual produces a limited range of goods and services

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7
Q

division of labour?

A

specialisation at the level of an individual worker

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8
Q

exchange?

A

when one thing is traded for another

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9
Q

Benefits of specialisation and division of labour?

A

1) repetition = skills and aptitude rise
2) reduced time spent moving between different tasks = increase productivity
3) division of labour = allows people to work to their strengths

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10
Q

SHORT RUN:

A
  • period of time in which the availability of at least one FoP is fixed
  • most likely land or capital
  • in SR, firms have some fixed CoP even if they dont produce any outpu
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11
Q

LONG RUN:

A

period of time over which all FoP can be varied

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12
Q

fixed costs?

A

do not vary directly with output in the short run

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13
Q

Average fixed costs?

A
  • total fixed costs / output

- AFC FALL as output RISES because firm is able to spread fixed costs over increasing volume of output

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14
Q

variable costs?

A

vary directly with output

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15
Q

Average variable costs?

A
  • total variable costs / output

- AVC FALL in the SR but RISE at higher levels of output because more units of FoP begin to overcrowd fixed FoP

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16
Q

Total costs

A

fixed total costs + variable total costs

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17
Q

Average total costs?

A

total costs / output

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18
Q

Marginal costs?

A
  • addition to a firms total costs from making an additional unit of output
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19
Q

Economies of scale?

A
  • benefits that can arise as a firm increases its output, leading to reduced ATC
  • reflects improvement in productive efficiency
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20
Q

Internal economies of scale?

A

reductions in LR ATC arising from growth of the firm

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21
Q

Financial EoS?

A

the larger and more reputable firm = more likely banks give loans

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22
Q

Technical EoS?

A

larger businesses can afford specialist capital = increase productivity

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23
Q

Marketing EoS?

A

larger firms have huge budget for advertising

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24
Q

Managerial EoS?

A

larger firms can affor high profile CEO

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25
external economies of scale
reduction in LR ATC arising from the growth of an industry in which a firm operates
26
Diseconomies of scale?
increases in ATC that firms may experience by increasing output in the LR
27
Coordination control:
larger firms = difficult to moniter use of all resources = increased wastage
28
communication?
larger firms - ineffective decision making and delays in action
29
The minimum efficient scale:
- the lowest level of output at which ATC are minimised | - once achieved, barrier to entry for new firms
30
Total revenue
price x quantity
31
Average Revenue
total revenue / quantity (same as price(
32
Marginal revenue:
change in tr / change in output (the addition to a firms total revenue from selling an additional unit of output)
33
Perfect competition characterised by:
1) Large number of buyers and sellers 2) perfect knowledge of the market 3) no B2E 4) each firm sells homogenous products - constant price, AR and MR are constant
34
profit
total revenue - total costs
35
normal profit
minimum level of profit required to reward entrepeneur for taking a risk
36
supernormal profit
profit above normal profit
37
how does technological change arise?
inventions and innovation
38
invention?
creation of a product / process
39
innovation?
new products and production processes that are developed into marketable goods or services
40
Effects of technological change:
1) fall in LR ATC = dynamic efficiency | 2) makes markets more competitive
41
creative destruction
- firms who enjoyed monopoly power see this eroded by development of 'new' 'disruptive' technologies - create new markets or revolutionise old ones - render existing products obsolete
42
Law of diminishing returns
when additional units of variable fop are added to a fixed factor, marginal product will eventually decrease
43
Why is the marginal cost curve upwards sloping?
- law of diminishing returns | - as units of fop become less productive, costs begin to rise
44
why does marginal cost curve always intersect average cost at lowest point?
marginal costs of making next unit of output will always affect average total cost
45
When does average cost fall?
when MC < AC
46
When does average cost rise?
when MC > AC
47
when does average cost stay the same?
when MC = AC
48
When does the law of diminishing returns set in?
when there is a fall in the rate of increase of marginal product
49
When does average product increase?
MP > AP
50
When does average product fall?
MP < AP
51
What happens to average fixed costs as output increases?
Decreases because firms can spread fixed costs over an increasing volume of output
52
What happens to AVC in the short run?
Initially fall but begin to rise at higher levels of output as more units of FOP overcrowd fixed FOP
53
Equation for Marginal Cost
change in total cost / change in quantity
54
When do returns to scale occur?
In the long run
55
Increasing returns to scale?
When an increase in the quantity of a firm's inputs leads to a proportionally greater change in output
56
Constant returns to scale?
when an increase in the quantity of a firm's inputs leads to a proportionally identical change in output
57
Decreasing returns to scale?
when an increase in the quantity of a firm's inputs leads to a proportionally lower change in output
58
What happens when a firm achieves the MES?
acts as a significant barrier to entry for potential competitors in an industry
59
What is the average revenue the same as?
price
60
Equation for marginal revenue?
change in total revenue / change in output
61
Shut down price
the minimum price that a firm needs to operate at in order to justify staying in the market in the short run
62
When can a firm stay in the market in the short run
- as long as revenues cover their variable costs (P>AVC) - given this, a contribution is made to cover some of the fixed costs that need to be paid regardless - as a result, the firm would be better off continuing production if we assume fixed costs are lost if a shut down decision is made
63
When will a firm shut down in the short run?
- p < AVC - shutdown production to minimise their losses - this is because not enough revenue is being generated and total losses suffered would be higher if production continued
64
Shutdown point in the long run
- p > or equal to LRAC, they can remain in the industry | - firms need to be making normal profit in the long run to remain in the industry
65
Economies of scale AC (INTERNAL)
- total costs rising | - quantity rising at a faster rate
66
Economies of scale AC (EXTERNAL)
total costs are falling as quantity rising
67
Diseconomies of scale AC
- quantity rising | - total costs rising at a faster rate
68
Diseconomies of scale: CONTROL
- as business becomes larger, difficult for managers to control the work force - if employees know manager isn't watching - slack off more - impacts productivity - quantity suffers
69
Diseconomies of scale: COMMUNICATION
- much harder to spread messages - delays in action - impact productivity
70
Diseconomies of scale: MOTIVATION
- as workforce gets larger, each individual worker feels less valued - dispensable - reduced motivation and reduced productivity

MICROECONOMICS REVISION (9 decks)

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