Production costs and revenue

Question 1

Production

Answer 1

converts inputs (factors of production) into final output

measures by total output

Question 2

Production depends on…..

Answer 2

quantity of FOP

extent to which resources are utilised

quality of FOP

level of specialisation

scale of production

Question 3

Productivity

Answer 3

measures efficiency with which inputs are converted into outputs

Question 4

Labour productivity

Answer 4

measure of efficiency of labour

output over period of time
————————————-
number of employees

Question 5

Specialisation

Answer 5

economic unit focuses on producing specific product or limited range of products

Question 6

Division of labour

Answer 6

breaking production down into many tasks allowing FOP to focus on one small part of process

Question 7

Benefits of specialisation

Answer 7

increased efficiency (workers more skilled)

higher productivity (reduces time switching activities)

economies of scale (mass production of specific task cuts costs)

Question 8

Benefits of division of Labour

Answer 8

Expertise—Workers become experts in their assigned tasks.

Time Savings—Reduces the time spent on task-switching

Innovation—Specialization can lead to innovative methods and improvements in a specific area

Question 9

Efficient exchange

Answer 9

Exchange ensures that goods and services move from those who produce them to those who value them the most

Question 10

Need for means of exchange

Answer 10

In a highly specialized economy, direct barter becomes impractical.

A baker who specializes in bread may find it challenging to directly exchange bread for a computer from a specialized computer producer.

Question 11

Role of money

Answer 11

Money serves as a medium of exchange, facilitating transactions and overcoming the limitations of barter.

Question 12

Difference between short run and long run

Answer 12

Short run—time period in which only possible to change variable factors of production

Long run—time period in which all factors of production can be changed

Question 13

Fixed costs

Answer 13

do not vary with output in short run

Question 14

Variable costs (in regards to output)

Answer 14

vary with output in short run

Question 15

Total costs=

Answer 15

Fixed costs+ variable costs

Question 16

Average costs =

Answer 16

total costs
—————————
quantity produced

Question 17

Marginal costs

Answer 17

additional cost incurred by producing one more unit of output.

Question 18

Internal Economies of scale

Answer 18

the cost advantages a firm receives as it grows in size

Question 19

External economies of scale

Answer 19

the cost advantages a firm receives as its industry grows in size

Question 20

Technical economies of scale

Answer 20

larger firms have more expensive equipment

specialisation

Question 21

Economies of indivisibility

Answer 21

many types of machines are indivisible (minimum size below they can efficiently operate)

Question 22

Financial economies of scale

Answer 22

cost of borrowing is less for larger firms(lower risk)

Question 23

Purchasing economies of scale

Answer 23

can buy in bulk reducing costs

Question 24

Marketing economies of scale

Answer 24

advertising campaigns are more cost effective

Question 25

Managerial economies of scale

Answer 25

larger firms can employ specialist managers

Question 26

Risk bearing economies of scale

Answer 26

larger firms diversify markets

Question 27

Specialist firms and infrastructure (external)

Answer 27

in areas of industry specialist firms tend to locate there may be manufacturing and distribution

Question 28

Training and education (external)

Answer 28

local colleges and unis offer courses suited to industries in area

Question 29

Reputation (external)

Answer 29

city has reputation for particular industry assisting firms in area

Question 30

Internal Diseconomies of scale

Answer 30

as firm grows in size problems appear leading to to higher costs of production

Question 31

External diseconomies of scale

Answer 31

as industry grows in size problems appear leading to higher costs of production

Question 32

Coordination

Answer 32

as firm grows there may be loss in control

Question 33

Technical (internal diseconomies)

Answer 33

production on large scale becomes difficult to organise efficiently

Question 34

Communication

Answer 34

can be distorted and time taken causes issues

Question 35

Excessive bureaucracy

Answer 35

as firms grow levels of management increases slowing down decision making

Question 36

Industrial relations

Answer 36

poor communication leads to staff leaving or strikes

Question 37

less flexibility

Answer 37

difficult to adapt to change as quickly as smaller firms

Question 38

Pollution and traffic congestion(external)

Answer 38

reduces level of output slows down distribution

Question 39

Competition(external)

Answer 39

firms have less ability to attract customers leading to lower prices

Question 40

Higher costs of FOP(external)

Answer 40

may be shortage especially with land

Question 41

Average revenue

Answer 41

price of product total revenue ——————- output

Question 42

total revenue

Answer 42

all money firm gets from selling output total revenue=price x output

Question 43

Marginal revenue

Answer 43

extra revenue earned from sale of one extra unit

Question 44

Average revenue curve is …..

Answer 44

the same as the demand curve

Question 45

Relationship between average revenue and marginal revenue

Answer 45

when demand is perfectly elastic marginal revenue = average revenue

Question 46

Relationship between marginal revenue and total revenue

Answer 46

change in total revenue ——————————- = Marginal R change in quantity sold

Question 47

Profit

Answer 47

Difference between total revenue and total costs

Question 48

Normal profit

Answer 48

minimum profit that firm must make to stay in business ATC=AR

Question 49

Supernormal profit

Answer 49

over and above normal profit attracts firms into market in the long run

Question 50

Role of profit in market economy

Answer 50

Business incentives Worker incentives Shareholder incentives Incentives to supply more Economic efficiency Reward for innovation and risk taking Source of business finance Signals health of economy