Unit 4 - Production, Costs and Revenue

Question 1

Production

Answer 1

Converts inputs or factor services into outputs of goods and services.

Question 2

Factors of production

Answer 2

Inputs into the production process, such as, land, labour, capital and enterprise

Question 3

Productivity gap

Answer 3

The difference between labour productivity, e.g in the UK and in other economies

Question 4

Productivity

Answer 4

Output per unit of input

Question 5

Labour productivity

Answer 5

Output per worker

Question 6

Capital productivity

Answer 6

Output per unit of capital

Question 7

Firm

Answer 7

A productive organisation which sells its output of goods/services commercially

Question 8

Specialisation

Answer 8

A worker only performing one task or a borrow range of tasks. Also, different firms specialising in producing different goods or services

Question 9

Division of labour

Answer 9

This concept goes hand in hand with specialisation. Different workers perform different tasks in the course of producing a good or service

Question 10

Trade

Answer 10

The buying and selling of goods and/or services

Question 11

Exchange

Answer 11

To give something in return for something else received. Money is a medium of exchange

Question 12

Marginal returns of labour

Answer 12

The change in the quantity of total output resulting from the employment of one more worker, holding all other factors of production fixed.

Question 13

Law of diminishing marginal returns (also known as law of diminishing marginal productivity)

Answer 13

A short term law which states that as a variable factor of production is added to a fixed factor of production, both the marginal and eventually the average returns to the variable factor will begin to fall

Question 14

Total returns

Answer 14

The whole output produced by all the factors of production, including labour, employed by a firm

Question 15

Average returns of labour

Answer 15

Total output divided by the total number of workers employed

Question 16

Returns to scale

Answer 16

The rate by which output change last if the scale of all the factors of production is changed

Question 17

Plant

Answer 17

An establishment, such as a factory, a workshop or a retail outlet, owned and operated by a firm.

Question 18

Increasing returns to scale

Answer 18

When all the scale of the factors of production employed increases, output increases at a faster rate

Question 19

Constant returns to scale

Answer 19

When all the scale of all the factors of production employed increases, output increases at the same rate.

Question 20

Decreasing rate to scale

Answer 20

When the scale of all the factors of production employed increases, output increases at a slower rate.

Question 21

Fixed cost

Answer 21

Cost of production which, in the short run, does not change with output

Question 22

Variable cost

Answer 22

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

Question 23

Average fixed cost

Answer 23

Total cost of employing the fixed factors of production to produce a particular level of output, divided by the size of output: AFC = TFC \ Q

Question 24

Average total cost (also known as average cost)

Answer 24

Total cost of producing a particular level of output, divided by the size of the output: ATC = AFC + AVC

Question 25

Economies of scale

Answer 25

As output increases, long-run average costs fall.

Question 26

Diseconomies of scale

Answer 26

As output increases, long-run average costs rises.

Question 27

Internal economies and diseconomies of scale

Answer 27

Changes in long-run average cost of production resulting from changes in the size or scale of a firm or plant.

Question 28

External economy of scale

Answer 28

A fall in the long-run average costs of production resulting from the growth of the market or industry of which the firm is a part.

Question 29

External diseconomy of scale

Answer 29

An increase in long-run average costs of production resulting from the growth of the market or industry of which the firm is a part.

Question 30

Total revenue

Answer 30

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

Question 31

Average revenue

Answer 31

Total revenue divided by output

Question 32

Marginal revenue

Answer 32

Addition to total revenue resulting from the sale of one more unit of the product.

Question 33

Monopoly

Answer 33

One firm only in a market

Question 34

Perfect competition

Answer 34

A market that displays the six conditions of: -A large number of buyers and sellers -Perfect market information -The ability to buy or sell as much is desired at the ruling market price -The inability of an individual buyer or seller to influence the market price - A uniform or homogenous product -No entry or exit in the long run

Question 35

Price-taker

Answer 35

A firm which is so small that it has to accept the ruling market price. If the firm raises its price, it loses all of its sales ; if it cuts its price, it gains no advantage.

Question 36

Price- maker

Answer 36

When a firm faces a downward-sloping demand curve for its product, it possess the market power to set the price at which it sells the product.

Question 37

Quantity-setter

Answer 37

When a firm faces a downward-sloping demand curve for its product, it possess the market power to set the quantity of the good it wishes to sell

Question 38

Profit

Answer 38

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

Question 39

Profit maximisation

Answer 39

Occurs at the level of output at which total profit is greatest.

Question 40

Normal profit

Answer 40

The minimum profit a firm must make to stay in business l, which is l, however, insufficient to attract new firms into the market.

Question 41

Abnormal profit (also known as supernormal profit and above normal profit)

Answer 41

Profit over and above normal profit.

Question 42

Technological change

Answer 42

A term used to describe the overall effect of invention, innovation and the diffusion or spread of technology in the economy.

Question 43

Invention

Answer 43

Making something entirely new; something that did not exist before at all.

Question 44

Innovation

Answer 44

Improves on or makes a significant contribution to something that has already been invented, thereby turning the results of invention into a product

Question 45

Productive efficiency

Answer 45

For the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the average total cost of production is minimised.

Question 46

Dynamic efficiency

Answer 46

Measures improvements in productive efficiency that occur in the long run over time.

Question 47

Duopoly

Answer 47

Two firms only in a market

Question 48

Monopolistic competition

Answer 48

a market structure in which firms have many competitors, but each one sells a slightly different product.

Question 49

Creative destruction

Answer 49

Capitalism evolving and renewing itself over time through new technologies and innovations replacing older technologies and innovations.