Economics Unit 3 - Production

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  • Created by: Adrian
  • Created on: 17-05-13 11:05

Productivity - Unit 4

Productivity is the amount of output that can be produced from a given input of resources. Also, we can classify the firms who perform tasks according to what they do:

Primary Industry: This sector extracts or harvests natural resources. It also includes the production of raw materials and basic foods. (Examples: Coal producers, farmers, hunters)

Secondary Industry: This industry involves the activity of using the natural resources to make other goods. The process is called manafacturing. This involves construction, textile production, egineers, auto mobile producers, blacksmith etc. 

Tertiary industry: This sector is the service industry, which produces  goods,helps to sell goods, transport them or provide financial or personal services.


Fixed Costs: Costs that are not affected by level of output (Examples: Electricty, Rent, Heating, Repayment of Bank Loans)                   

Variable Costs: Costs that change directly based on level of output (Examples: Materials, wages

Average costs: Total Cost / Output

Total Variable Costs: Variable cost per unit Times Quantity Produced

Total Costs: Total Fixed Costs + Total Variable Costs

Why is the Average Cost Curve Likely To Be U-Shaped?

As you produce more, you experience economies of scale, so ACT (Average Costs) drops. When a firm expands, the scale of production has a chance to become more efficient and lower its average costs. However, average costs may start to rise again because firms may experience difficulties to increase output. This is when there are diseconomies of scale and when the firm is producing too much and becoming inefficient. For instance, supply may run out and the firms may have to buy extra where there is a higher price. Also, the firm may have to employ more people to work, hence paying them more money. Lastly, there may be breakdowns in communicates as firms get too large. This can possibly lead to a delay in making decisions. There may also be a decrease in staff morale. 

Profit and Revenue 

Take in mind that Total Revenue = Price per unit Times Quantity Sold

The break even point of production is where the two curves cross, where no profit or loss is made. This is where TR (Total revenue) = TC (Total Costs


Profit: Profit is what is left from revenue after all costs ahve been deducted (Total Revenue - Total Costs) 

Profit Maxisation: This is when a firm determines the price…


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