production, costs and revenue

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  • Production, Costs and Revenue
    • Production- The outputs of goods and services produced by a business
      • Short run production- refers to as the time period where there is a least one fixed factor of production
      • Long term production- when all the factors of production can change allowing a business change the scale of their operations
    • Productivity- The output per unit of input ( labour productivity is the output per worker employed)
      • Output/ number of employees
      • Possible factors that affect labour productivity would be:
        • The degree of competition in the market
        • Advances in production technology
        • specilaisation
        • training to boost skills
        • Strength of demand for a product
    • Marginal product- change in total output from adding one extra unit of labour
    • Average product- total output divided by the total units of labour employed
      • Output/ workers
    • Productivity Gap- the difference between labour productivity in the UK and in other developed economies.
      • The UK has poor productivity
    • Productive Efficiency- measures how well an economy or firm uses its resources to produce  outputs
      • Factor inputs + factor productivity = outputs of goods and services
    • Law of diminishing returns
      • production, increasing the number of variable factors leads to an increase in productivity
        • This is known as increasing marginal returns so as  each new worker is contributing more to the firm as the average total costs fall.
          • At a certain level of output increasing the number of variable factors will mean that the fixed factors become over used and costs of producing each unit will begin to rise
            • This is referred to as law of diminishing returns i.e if one factor of production ( number of workers) increased while other factors ( machines and work space) are held constant, the output per unit of the variable factors will eventually reduce
      • Why do businesses suffer from diminishing returns
        • Is because the fixed factor of production can become overworked/ overcrowded meaning factors of production operate at a lower efficiency levels
          • Diagram
            • The marginal product increases as output increases
              • once the fixed factor becomes over worked marginal product starts to fall as diminishing returns sets in
                • This will pull down the average product for the firm

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