production, cost and revenue, law of diminishing return

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what is production
combination of factors of production(inputs) into a finished product
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what is output
quantity of finished goods and services
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what is productivity
output per factor input. for labour this is output per worker
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what factors effect labour productivity
wage rate: higher wage may make workers more motivated to work hard. technology: improved technology will enable workers to be more productive and produce more in the same amount of time. education,skills: increases. good management: increases
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what is specialisation
people or countries doing things their most efficient in. i.e countries will specialise producing goods where they have a comparative advantage such as japan producing high-electronic goods
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what is division of labour
this occurs when workers concentrate on different tasks within a firm. rather than try master all aspects of production, some workers will specialise at a certain job.(i.e. in a car-building firm one worker may work with design and others paintt
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what are advantages of specialisation
training: division of labour gives workers time to gain skills for one particular job. efficiency: enables EofS, lower average costs, more profit for investment. quality: if workers are specialising in things their best at, higher quality goods
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what are disadvantages of specialisation
boredom: workers end up doing repetitive tasks, which leads to boredom. lack of flexibility:Some workers receive little training and may not be able to find alternative jobs(structural unemployment).
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what is money
a medium of exchange between two parties.money allows people to specialise in one job + use their earning to purchase goods and services from those who work elsewhere. without money,we would have a barter economy,making specialisation harder
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what are fixed costs/variable costs/total costs
costs that do not vary with output/costs that do vary with output/fixed + variable costs
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what is the short run/long run in MICRO
a time period in which at least one of a firm's factors of production is fixed/a time period in which all the factors of production are variable, so a firm can expand it's capacity
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how do you calculate: ATC/AVC/AFC
ATC= TC/Q, AVC=VC/Q, AFC=FC/Q
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what is total product/marginal product
TP: total output produces by all workers. MP: output produced by one extra worker
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what is the law of diminishing returns(IN THE SHORT RUN)
if the variable factor of production is increased, there is a point where it will become less productive. when capital is fixed, extra workers will get in each other's way,as they attempt to inc production. when diminishing returns increases,MP↓ MC↑
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what are returns to scale
returns to scale examines the relationship between increasing the quantity of inputs and the impact on output
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what are constant/increasing/decreasing returns to scale
constant; when output increases by that same proportion as the change in inputs/ increasing; if output increases more than the proportional change in inputs/ decreasing; if output increases less than the proportionate change in inputs
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how are returns of scale related to economies of scale
closely related: with increasing returns to scale, we are likely to see EofS(lower unit costs with higher output). but this depends on whether costs of inputs stays constant
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what are economies of scale
long run average costs fall with increasing output. in industries with economies of scale we will become more efficient with higher output(such industries with economies of scale include railways, car production
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what are internal/external economies of scale
internal; occur when an individual becomes more efficient. external; when firms benefit from the whole industry getting bigger
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internal economies of scale include.............
specialisation: more efficient workers, bulk-buying: AC decrease ,technical: , financial economies, risk bearing
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What are external economies of scale?
This occurs when firms benefit from the whole industry getting bigger. For example, if the car industry gets bigger, all car firms will benefit from better infrastructure, and access to specialised labour and good supply networks.
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What are diseconomies of scale?
This occurs when LRAC’s start to rise with an increased output. Therefore, there will be decreasing returns to scale. As the firm gets bigger it will become more inefficient.
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Why do diseconomies of scale occur?
Poor communication: As the business expands communicating between different departments and along the chain of command becomes more difficult. There are more layers in the hierarchy that can distort a message. waste,loss of co-ordination
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How do you work out Total revenue(TR),Average Revenue(AR) and Marginal revenue(MR)
TR= p x q / AR=TR/Q / MR= the extra revenue gained from selling an extra unit of good
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What is profit and the types of profit?
Profit= TR-TC.Normal profit= TC=TR. This is the breakeven point and is the minimum profit necessary to keep the firm in the industry in the long run.Supernormal profit= TR>TC profit above the breakeven point Subnormal= TR
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What is the role of profit in a market economy?
Incentive: profit gives entrepreneurs an incentive to set up businesses and produce goods that are in demand.Signal: profit acts as a signal for enterprises that are in high demand. Declining profit can provide a signal to reduce production
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cont.
Investment: profit can be used to finance investment in research and development- to help produce products of a higher quality. Tax: governments place corporation tax on company profit to take a percentage.
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What is invention and innovation?
Invention is creating a new product and Innovation is making a better use of ideas, labour and technology. Innovation helps to gradually improve efficiency through steady evolution.
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What are the impacts of technological change?
Technology can lead to lower production costs for firms (and lower prices for consumers) and new products for consumers. But, older methods of production can become outdated and lead to some job losses (creative destruction).
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cont.
Technology can enable moffective global competition- breaking down domestic monopolies
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What is the level of profit maximisation?
will occur at output where MR=MC. If MR>MC total profit rises; if MR
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Card 2

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what is output

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quantity of finished goods and services

Card 3

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what is productivity

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Card 4

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what factors effect labour productivity

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Card 5

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what is specialisation

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