Production Costs and Revenues Flashcards
(30 cards)
What does production do with inputs like capital and labour?
Production converts inputs into a final output that satisfies consumer needs and wants.
How is productivity calculated?
Productivity is calculated by output per worker per period of time.
What does it mean to be more productive?
Being more productive means the same input produces more output over the same period of time.
What does being less productive entail?
Being less productive requires a larger input to produce the same quantity of output.
What is the benefit of being more productive?
Being more productive lowers average costs per unit of output.
What is specialisation in production?
Specialisation occurs when each worker completes a specific task in the production process, increasing efficiency and productivity.
Who famously stated the concept of division of labour, and what does it entail?
Adam Smith; it involves dividing production into distinct tasks to increase output and efficiency.
What are some advantages of specialisation?
Higher output and quality, greater variety of goods, economies of scale, and increased competition leading to lower prices.
What are some disadvantages of specialisation?
Repetitive work reducing motivation, potential structural unemployment, decreased variety for consumers, and higher worker turnover
How can countries benefit from specialising in certain goods?
By exploiting their comparative advantage, leading to greater world output, lower costs, and more goods available.
What is the difference between absolute advantage and comparative advantage?
Absolute advantage occurs when a country can produce more of a good with the same resources, while comparative advantage is about producing at a lower opportunity cost.
What are the advantages of countries specialising and trading?
Increased global output, lower costs, more variety, and an outward shift of the PPF curve.
What are some disadvantages of country specialisation and trade?
Depletion of non-renewable resources, over-dependence on one commodity, and vulnerability to market fluctuations.
What are the four main functions of money?
Medium of exchange, measure of value (unit of account), store of value, and method of deferred payment.
How does money act as a medium of exchange?
It replaces barter, eliminating the need for a double coincidence of wants and facilitating transactions.
Why is money considered a measure of value?
It provides a standard to compare the relative worth of goods and services.
What is meant by money as a store of value
Money can be saved and used later without losing its value, although its purchasing power can fluctuate.
How does money facilitate deferred payments?
It allows people to buy now and pay later, creating credit and loans based on the expectation that money will hold its value.
In the short run, what is true about factors of production and costs?
At least one factor of production cannot change, meaning there are some fixed costs.
In the long run, what happens to factor inputs and costs?
All factor inputs can change, and all costs become variable.
What are fixed costs? Give examples.
Fixed costs do not vary with output, e.g., rent, advertising, and capital goods.
What are variable costs? Give an example.
Variable costs change with output, e.g., the cost of raw materials.
Why is the short run average total cost curve U-shaped?
Due to diminishing returns: adding more resources eventually reduces marginal output, raising marginal costs.
What happens to long run average costs initially as output increases?
They fall due to economies of scale.
