Production Costs and Revenues Flashcards
(29 cards)
Automation
The process by which machines control other machines
Average cost
Total production cost divided by total output (cost per unit of output)
Average revenue
Total revenue/ total output
Capital productivity
Output per unit of capital
Constant returns to scale
When output increases by an equal proportion of the increase in inputs
Decreasing returns to scale
When output increases by a smaller proportion than the increase in inputs
Diseconomies of scale
When long-run average costs rise as output rises
Division of labour
Different workers performing different tasks in a good’s/ services’ production, specialising to an extent
Economies of scope
When it’s cheaper to make a range of products
Economy of scale
When long-run average costs fall as output rises
External economy of scale
Firms saving resulting from growth of the industry a firm is part of
Fixed cost
Costs of production that do not vary with output, only in the short run
Increasing returns to scale
When output increases by a larger proportion than the increase in inputs
Internal economy of scale
Firms saving resulting from growth of the firm itself
Law of diminishing returns
As a single input is increased while all other inputs are held constant, the additional output gained from that input will eventually decrease
Long run
Time period in which none of the factors of production are fixed, can all be varied
Long-run average cost
Long-run total cost per unit of output
Long-run production
When a firm changes the scale of all factors of production
Mechanisation
When a firm transfers from becoming more labour intensive to becoming more capital intensive
Minimum efficient scale (MES)
The lowest level of output at which average costs are minimised. Dependent on other market structures as well as barriers to entry
Normal profit
Total revenue = total costs; the minimum profit required to keep a firm operating in an industry
Productive efficiency
Minimised average total cost
Rate of return
Income received from an investment
Returns to scale
The scale by which a firm’s output changes as the scale of all inouts are altered
