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Microeconomics > Production Costs and Revenues > Flashcards

Production Costs and Revenues Flashcards

1
Q

Describ the short run?

A

At least one factor of production can’t change

Some fixed costs

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2
Q

Describe the long run?

A

All factor inputs can change

All costs are variable

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3
Q

Define fixed costs?

A

Costs which do not vary with output

E.g. Rents advertising and capital goods

Indirect

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4
Q

Define variable costs?

A

Costs which change with output

E.g. Raw materials

Direct costs

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5
Q

What is the total cost?

A

Total variable costs + total fixed costs

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6
Q

What is specialisation?

A

When each worker completes a specific task in a production process

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7
Q

Who can achieve specialisation?

A

Individuals
Businesses
Regions of countries
Countries

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8
Q

Advantages of specialisation?

A

Greater variety of goods and services produced
More opportunities for economics of scale (size of market increases)
Higher output and potentially higher quality (people focus on what they are good at)
More competitive and this gives an incentive for firms to lower their costs, keeping prices down

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9
Q

Disadvantages of specialisation?

A

Work becomes repetitive, lower motivation, affects quality and productivity
More structural unemployment (skills transferable) because workers focused on one task for so long
Higher worker turnover for firms which employees become dissatisfied with their jobs and leave regularly
Variety can decrease by producing one type of good

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10
Q

What is comparative advantage?

A

A country can produce a good at a lower opportunity cost to another

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11
Q

When does absolute advantage occur?

A

When a country can produce more of a good with the same factor inputs

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12
Q

What is absolute advantage?

A

When a country can produce more of a good with the same factor inputs

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13
Q

Disadvantage of absolute advantage?

A

Less developed countries use non renewable sources too quickly
Over dependency on one commodity

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14
Q

What does being more productive do?

A

Lowers average costs per unit of output

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15
Q

How can productivity be increased?

A

By training workers or using more advanced capital machinery

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16
Q

What does being less productive require?

A

A larger input to produce the same quantity of output

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17
Q

How is productivity calculated?

A

By output per worker per period of time

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18
Q

What does being more productive require?

A

The same input e.g. No of workers
The same period of time
Produces more output

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19
Q

What does being less productive require?

A

Larger input to produce the same quantity of output

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20
Q

What is production?

A

Converting input into a final output

Satisfies consumer needs and wants

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21
Q

Calculate total revenue?

A

Price times quantity sold

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22
Q

When do internal economies of scale occur?

A

These occur when a firm becomes larger

Average costs of production fall as output increases

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23
Q

Examples of internal economies of scale mnemonic?

A 
Really - risk bearing
Fun - financial
Mums - managerial 
Try - technological 
Making - marketing
Pies - purchasing
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24
Q

When do diseconomies of scale occur?

A

When output passes a certain point and average costs start to increase per extra unit of output produced

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25
Q

3 Cs of diseconomies of scale?

A

Control
Coordination
Communication

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26
Q

Describe diseconomies of scale in terms of control?

A

It becomes harder to monitor how productive the workforce is as the firm becomes larger

27
Q

Describe diseconomies of scale in terms of coordination?

A

It is harder and complicated to coordinate every worker when there are thousands of employees

28
Q

Describe diseconomies of scale in terms of communication?

A

Workers may start to feel alienated and excluded as the firm grows
Leads to a fall in productivity
Increase in average costs
As they loose motivation

29
Q

Describe the economies of scale in managerial terms?

A

Larger firms are more able to specialise and divide their labour
Can employ specialist managers and supervisors
Lowers average costs

30
Q

Describe the economies of scale in technological terms?

A

Larger firms can afford to invest in more advanced and productive machinery and capital
Which lowers average costs

31
Q

Describe the economies of scale in marketing terms?

A

Larger firms can i code their marketing budgets across larger outputs
The average cost of advertising per unit is less than that of a smaller firm

32
Q

Describe the economies of scale in purchasing terms?

A

Larger firms can buy in bulk

Each unit costs them less

33
Q

Define derived demand?

A

Demand for goods or services which is a consequence of demand for something else

Eg demand for economics tutors is dependent on demand to study economics

34
Q

Define composite demand?

A

A good that is demanded for (multiple) two or more distinct purposes

35
Q

Define joint demand?

A

when demand for two goods is interdependent

A good is demanded for use with another related GOOD

36
Q

Define joint supply?

A

An increase in the supply of one good increases the supply of another

37
Q

What is the formula for labour productivity?

A

Output
/
Total units of labour employed

38
Q

Describe the division of labour?

A

The splitting up of complex tasks into their individual components and allowing workers to specialise in these
Improving the productivity with which they can produce

39
Q

In the short run, in general how do you increase production?

A

By employing more labour

40
Q

What is difficult to alter in the short run?

A

Amount of land employed

Capital

41
Q

How do you generally measure productivity?

A

By output per worker
Or
Output per worker per hour

42
Q

What is productivity a measure of?

A

The efficiency of factors of production

43
Q

What is economies of scale?

A

Factors which allow firms to enjoy lower average costs of production as output increases

44
Q

Types of economies of scale?

A

Purchasing economies
Technical economies
Marketing economies
Managerial economies

45
Q

Describe managerial economies of scale?

A

High scale production allows firms to enjoy specialist workers who may be more efficient than those who already required to perform a wider range of tasks

E.g. Division of labour

46
Q

Describe purchasing economies of scale?

A

Firms ability to negotiate discounted prices when buying in bulk
Some supermarkets have been criticised for abusing their power of monopoly
Do this by forcing small suppliers to accept very low price see for the goods they provide them with

47
Q

Describe technological economies of scale?

A

Producing on a large sale of output allows firms to be able to afford the most technologically advanced and efficient capital
Due to its costs being spread out over a large number of units of output

48
Q

Describe diseconomies of scale?

A

When a business gets too big for its operations

Average costs begin to rise

49
Q

Sources of diseconomies of scale?

A

Communication
Control
Coordination

50
Q

Due to what factor is diseconomies of scale usually found in labour intensive industries?

A

Human nature

51
Q

What determines how much a firm can benefit from the economies of scale?

A

Strength of demand - firms will only seek to exploit economies of scale if there is sufficient demand for that level of output

Nature of production - capital intensive productive processes that produce standardised products tend to benefit especially from technical and purchasing economies of scale

52
Q

Positive XPED relationship?

A

Substitutes - as price goes up demand goes up

53
Q

Negative XPED relationship?

A

Complements - as price goes up demand goes down

54
Q

What good has a negative IEOD?

A

Inferior goods - demand falls as income rises

55
Q

What good has a positive IEOD?

A

Normal goods - as consumer income rises more if demanded

56
Q

describe external economies of scale

A

within an industry

eh developing reaserching and development facilities in local universities

spending by local authorities improving transport network

57
Q

difference between average and total revenue

A

total - total flow of income to a firm for a given quantity of output at a given price

average - revenue per unit (TR by quality sold)

58
Q

what causes geographical immobility?

A

cost of travel
distance and time taken travelling
commitment at current location

59
Q

occupational immbolity

A

not trained or skilled sufficiently

can’t move employment fields

60
Q

what happens when two products are in joint supply?

A

a fall in output of one product is accompanied by a decrease in the output of another product

61
Q

Specialisation

A

the production process to be split into a number of different tasks
division of labour
highly skilled in particular tasks

62
Q

how specialisation leads to increased productivity

A

division of labour
so workers are likely to become highly skilled in particular task
enabling them to complete the task quicker
and with better quality
leading to an increase in output for the same amount of time

becomes cost effective to provide the neccesary capital which wouldn’t have been affordable if provided for all workers

produces goods quicker so productivity increases

63
Q

how increased productivity in specialisation leads to increased competitiveness

A 
productivity increases the firm produces more units in the same time period 
more productively efficient 
fall in average costs of production
firm is able to reduce price
lower price than competitors
increased competitiveness

Microeconomics (5 decks)

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