Production, Costs & Revenue (12) (AS overall) Flashcards
(38 cards)
What are fixed costs?
Costs paid regardless of output.
What are Variable costs?
Costs paid that vary directly with output.
What are and how do you calculate total costs?
Total costs equal fixed costs plus variable costs and this is the total cost of something.
What is and how do you calculate the total revenue?
Total revenue is the overall amount of money made and is calculated by price per unit times quantity of units sold.
How do you calculate profits and average costs?
To calculate profits or losses you do total revenue minus total costs. Average costs are calculated by total cost divided by total output.
What are marginal costs?
The additional cost incurred in the production of one more unit of a good or service. If marginal cost is greater than what you’d sell the unit for you don’t produce the extra unit.
What two things are satisfied when average costs are lowest?
Firms are able to maximise their profit and economists see firms producing efficiently.
In economics what is the short run?
The period of time in which one factor of production is set or fixed.
In economics what is the long run?
The period of time in which all factors of production and resources are variable so the scale of production is variable.
What are economies of scale and when do they occur?
They are the cost benefits of being a bigger company organisation over a smaller one. They occur when average costs for due to increased scale of production.
What are the five internal economies of scale and how do they work?
Tony’s Mother Found My Rabbit Technical - use of technical machinery Marketing – bulk buying to lower cost per unitFinancial - lower interest rates because they’re seen as safer investmentsManagerial - hire specific/focused managersRisk bearing - spread risk over large areas to reduce the chance of losing out overall
What are diseconomies of scale?
The negative cost impacts of when a company gets too big and is less efficient.
What causes diseconomies of scale?
Control - decisions take longer because there are more people involvedCommunication - broken lines of communicationCoordination - trying to juggle too many things Corporation - employees feeling insignificant so choose not to cooperate
What are external economies of scale?
The falling average costs as an industry grows.
What causes external economies of scale?
Pool of skilled labour force - lower training costs - Specialist supplier of raw materials - Specialised services - banking and education - Specialised market - Lloyd’s of London - Improved infrastructure - better roads
What are external diseconomies of scale?
The rising average costs as an industry grows.
What causes external diseconomies of scale?
Increased demand for resources leads to a higher price for them. Increased volume of traffic congestion leads to increased travel costs.
What is specialisation?
A system of organisation where by economic agents such as individuals and businesses or nations concentrate on producing a certain good or service.
What is needed for specialisation to work?
Trade/markets and an efficient means of exchanging goods or services for money.
What is the division of labour?
This is where a production process is broken down into separate tasks, each worker specialises in one particular operation.
What are the positives and negative’s of the division of labour?
Positive - Less time wasted between jobs - Less training for workers - Specialist machines - Products always equal quality - Often lower average costsNegative - Fewer tradable skills - Workers may bore quickly - High initial investment costs - Risk of overspecialisation
What may the effective division of labour lead to?
Increased price competitiveness Better quality products Increased profit margins
What occurs in the short run and what occurs in the long run?
Short run - specialisation Long run - economies of scale
What is productivity and what is its unit?
Productivity is a measure of the efficiency of the production process is unit is output per unit of input.
