Topic 3

Question 1

Productivity Definition

Answer 1

Output per unit of input.

Question 2

Productivity Gap Definition

Answer 2

The difference between labour productivity in the UK and in other developed economies.

Question 3

Short-run Production Definition

Answer 3

Occurs when a firm adds variable factors of production to fixed factors of production.

Question 4

Labour Productivity Definition

Answer 4

Output per worker.

Question 5

Production Definition

Answer 5

The conversion of inputs, or services of factors of production, into final outputs of goods and services.

Question 6

Capital Productivity Definition

Answer 6

Output per unit of capital.

Question 7

Long-run Production Definition

Answer 7

Occurs when a firm changes the scale of all the factors of production.

Question 8

Specialisation Definition

Answer 8

A worker only performing one task or a narrow range of tasks, or a country or firm producing a limited range of goods by an individual factor.

Question 9

Division of Labour Definition

Answer 9

Breaking down the production of process so that different workers perform different tasks in the course of producing a good or service.

Question 10

Advantages of Division of Labour

Answer 10

Time saving as workers wont need to switch between tasks, the workers become more efficient or productive at the task, more or better machinery or capital can be employed.

Question 11

Disadvantages of Division of Labour

Answer 11

Low morale as the job is repetitive and tedious, low wages, lack of variety for customers.

Question 12

How does the division of labour reduce cost and increase competitiveness?

Answer 12

Increased productivity, increased efficiency, low waste, more production in the same time, decreased average cost.

Question 13

Trade Definition

Answer 13

The buying and selling of goods and services.

Question 14

Exchange Definition

Answer 14

To give something in return for something else received.

Question 15

Advantages of Specialisation

Answer 15

Increased output, variety has access to a greater variety of higher quality products, a bigger market, offers opportunities for economies of scale, competitive and lower prices.

Question 16

Fixed Cost Definition

Answer 16

Cost of production which in the short run, doesn’t change with output.

Question 17

Variable Cost Definition

Answer 17

Cost of production which changes with the amount that is produced, even in the short-run.

Question 18

Total Cost Equation

Answer 18

Fixed Costs+Variable Costs

Question 19

Average Cost Equation

Answer 19

Total Cost/Output

Question 20

Economies of Scale Definition

Answer 20

As output increases, long run average cost falls.

Question 21

Diseconomies of Scale Definition

Answer 21

As output increases, long run average cost rises.

Question 22

Internal economies of scale

Answer 22

Technical economies, managerial economies, marketing economies, financial(or capital raising) economies, risk-bearing economies, economies of scope.

Question 23

Technical Economies

Answer 23

Created through changes to the productive process as the scale of production and and level of output increase. Main types are: invisibilities- many types of plant or machinery are invisible, spreading cost of R&D costs over a longer production run will reduce unit costs in the long-run, volume economies- where costs increase slower than capacity, economies of massed resources, economies of vertically linked processes.

Question 24

Marketing Economies

Answer 24

There is bulk-buying and bulk-marketing economies. Large firms can use their market power both by buy suppliers at a lower price and also to market their products on better terms negotiated with wholesalers and retailers.

Question 25

Marketing Economies

Answer 25

There is bulk-buying and bulk-marketing economies. Large firms can use their market power both to buy supplies at a lower price and also to market their products on better terms negotiated with wholesalers and retailers.

Question 26

Financial(or capital raising) Economies

Answer 26

Bulk-buying or bulk-borrowing of funds required to finance a business expansion. large firms can often borrow from banks and other financial institutions at a lower rate of interest and on better terms available to small firms.

Question 27

Risk-bearing Economies

Answer 27

Large firms are usually less exposed to risk than small firms, because risks can be grouped and spread. It makes firms less vulnerable to sudden changes in demand or by conditions of supply that might severely harm a smaller less diversified business.

Question 28

Economies of Scope

Answer 28

Factors that make it cheaper to produce a range of products together than to produce each one of them on their own.

Question 29

Internal diseconomies of scale

Answer 29

Managerial diseconomies, communication failure, motivational diseconomies.

Question 30

Managerial Diseconomies

Answer 30

As a firm grows in size, administration of the firm becomes more difficult. Delegation of some of the managerial functions to people lower in the organisation may mean that personnel who lack appropriate experience and may make bad decisions, thus increasing average costs of production.

Question 31

Communication Failure

Answer 31

In a large organisation there may be too many layers of management between top managers and ordinary production workers, and staff can feel remote and unappreciated. When staff productivity begins to fall, unit costs begin to rise. As a result the problems facing the business are not effectively addressed.

Question 32

Motivational Diseconomies

Answer 32

With large firms, it is often difficult to satisfy and motivate worker. Over specialisation may lead to de-skilling and to a situation in which workers perform repetitive boring tasks and have little incentive to use personal initiative in ways which to help their employer.

Question 33

Internal Economy of Scale Definition

Answer 33

Cost saving resulting from the growth of the firm itself.

Question 34

External Economy of Scale Definition

Answer 34

Cost saving resulting from the growth of the industry or market which the firm is a part.

Question 35

Total Revenue Definition

Answer 35

All the money received by a firm from selling its total output.

Question 36

Profit Definition

Answer 36

The difference between total sales revenue and total cost of production.