production, costs and revenue Flashcards
(39 cards)
What is meant by production in economics?
Production is the process of converting inputs into final outputs.
What is productivity?
Productivity is the output produced per unit of input.
What is labour productivity?
Labour productivity is output per worker or per hour worked.
What are the benefits of specialisation?
(A) Increases efficiency. (B) Increases output. (C) Reduces average costs.
What are the benefits of division of labour?
(A) Increases speed. (B) Increases skill. (C) Reduces unit cost.
Why does specialisation require a medium of exchange?
Because individuals and firms need a way to trade goods and services.
What is the difference between the short run and long run?
Short run has at least one fixed factor; long run all factors are variable.
What are marginal, average and total returns?
(A) Marginal return = extra output from one more unit of input. (B) Average return =
total output ÷ units of input. (C) Total return = total output from all inputs.
What is the law of diminishing returns?
Adding more of a variable input to fixed inputs eventually causes output to rise at a
decreasing rate.
What are returns to scale?
Returns to scale refer to how output changes when all inputs change.
What is increasing returns to scale?
Increasing returns = output increases more than input.
What is constant returns to scale?
Constant returns = output increases in proportion to input.
What is decreasing returns to scale?
Decreasing returns = output increases less than input.
What are fixed costs?
Fixed costs do not vary with output.
What are variable costs?
Variable costs change with output.
What are marginal, average and total costs?
(A) Marginal cost = cost of producing one more unit. (B) Average cost = total cost ÷
output. (C) Total cost = fixed cost + variable cost.
What is the difference between short-run and long-run costs?
Short-run includes fixed costs; long-run all costs are variable.
What affects the shape of cost curves?
(A) Law of diminishing returns. (B) Economies of scale.
How do factor prices affect cost of production?
Higher factor prices increase production costs.
How does productivity affect cost of production?
Higher productivity reduces cost per unit.
What are internal economies of scale?
Cost savings from growth within a firm.
What are external economies of scale?
Cost savings from growth in the whole industry.
What causes diseconomies of scale?
(A) Communication breakdown. (B) Managerial issues. (C) Worker alienation.
What is the relationship between returns to scale and economies of scale?
Increasing returns to scale lead to economies; decreasing returns lead to
diseconomies.
