Yr2 Production, Costs and Revenues

Question 1

PART 1

Answer 1

PRODUCTION AND PRODUCTIVITY

Question 2

PART 2

Answer 2

SPECIALISATION, DIVISION OF LABOUR AND EXCHANGE

Question 3

PART 3

Answer 3

COSTS OF PRODUCTION

Question 4

Give some examples of variable costs to a business

Answer 4

• raw materials
• utilities
• security
• shipping
• deliveries

Question 5

What are some examples of fixed costs to a business?

Answer 5

• rent
• wages
• insurance
• loans
• security
• capital maintenance

Question 6

What is the definition of fixed costs?

Answer 6

Costs that do not change with output

Question 7

What is the definition of variable costs?

Answer 7

Costs that change with output

Question 8

What is the definition of total costs?

Answer 8

The complete cost to a business of producing a good
- variable costs + fixed costs

Question 9

What is the definition of revenue?

Answer 9

• value of sales made during a trading period
• selling price x no of units

Question 10

What is the definition of profit?

Answer 10

What is left when costs have been deducted from revenue

Revenue - TC

Question 11

What is the equation for averages wage?

Answer 11

Revenue / no of units

Question 12

What does a cost diagram look like and what is on it?

Answer 12

TC, FC, VC

FC - horizontal line

VC - diagonal line starting from the origin

TC - diagonal line starting from 0 units but at the FC

Question 13

What does the average cost diagram look like?

Answer 13

Negative quadratic

Question 14

What is the basic shape of marginal costs diagram?

+ what does the diagram display?

Answer 14

Slopes downward for a short amount of time and then slopes upwards for the rest of time

Demonstrates economies of scale

Question 15

What is different in terms of short run or long run time scales?

Answer 15

Short run
- at least one factor of production is fixed

Long run
- no factors of production are fixed and all factors of production can be varied

Question 16

PART 4

Answer 16

ECONOMIES AND DISECONOMIES OF SCALE

Question 17

What is the definition of returns to scale?

Answer 17

How the output of a business responds to a change in factor inputs

Question 18

What is the way to demonstrate increasing returns?

Answer 18

When % change in output > % change in inputs

Question 19

What is the way to demonstrate decreasing returns?

Answer 19

When % change in output < % change in inputs

Question 20

What is the way to demonstrating constant returns?

Answer 20

When % change in output = % change in inputs

Question 21

What diagram represents economies and diseconomies of scale?

+ what parts represent what + labelling axis

Answer 21

The growth of firms illustration
- negative quadratic shaped

Economies of scale as slopes downwards and diseconomies of scale as slopes upwards

Y axis - cost and revenue
X axis - output

Question 22

What is the definition of economies of scale?

Answer 22

A proportionate saving in costs gained by an increased level of production

Question 23

What is the definition of diseconomies of scale?

Answer 23

When the growth of a firm leads to increasing the cost per unit

Question 24

What is the definition of internal economies of scale?

Answer 24

Cost saving resulting from the growth of the firm itself

Question 27

What are the 4 key benefits to consumers of EOS?

Answer 27

1. Lower prices
   - leading to higher real incomes + increased consumer surplus
   - emphasis on improved affordability and effective demand for households on below average incomes
2. Producer surplus has value
   - reinvested in capital spending and research and development which might lead to improvements in dynamic efficiency e.g. farming
3. Consumers as employees
   - potential for higher real wages and profit shares e.g. in a business with employee-share schemes
4. Consumer benefits from network externalities
   - e.g.travellers benefitting from more hotels listed on a platform, improved quality of information as more users join a network

Question 28

NEED TO APPLY THE THEORY

Question 29

What are the 6 types of economies of scale?

Answer 29

1. Technical
2. Financial
3. Managerial
4. Commercial/ marketing
5. Risk bearing
6. Research and development

Question 31

PART 5

Answer 31

REVENUE