production costs and revenue

what is production

converting inputs {eg factors of production} into an output {eg a finished good / something that can be sold}

what's productivity

output per unit of input

measures efficiency

labour productivity

Output over a time period / number of employees

What is specialization

when a worker only does one specific thing in the production process oppose to a range of different things

advantages of specialisation

higher output and quality-people are doing what they're best at

higher output-resources used for efficient production as countries are producing things they're best at

higher productivity - lowers cost of production, lower prices for consumers

disadvantages of specialisation

repetitive work - lower worker motivation - lower productivity and quality

more structural Unemployment cuz workers have narrow skill set-not transferable to other jobs

reliance on other countries

repetitive work - worker turnover -employees dissatisfied w job and leave regularly

division of labour

The specialisation of workers on specific tasks in the production process

what is a barter system

exchanging one good or service for another good or service

this is inefficient as it takes a lot of time and effort to find traders to barter with

Money's four functions

medium of exchange

measure of value - provides a mean to measure the value of different goods

store of value - can be kept for a long time without losing value

differed payments - money can be payed later for something that's consumed now

short run

the period of time during which at least one of a firm's factors of production are fixed

long run

the time period in where no factors of production are fixed

all variable

marginal return

the additional output from adding one more unit of one of the FOP

average return

Output per unit of input over certain time

total returns

total output produced by a number of units of factors over a period of time

what are returns to scale

the change in output of a firm after an increase in factor inputs

increasing returns to scale

Increase in scale of all factors of production leads to a more than proportionate increase in output

decreasing returns to scale

increase in all factor inputs leads to a less than proportional increase in output

constant returns to scale

increase in all factor inputs leads to a proportional increase in output

law of diminishing returns

only occurs in short run

if one variable FOP is increased while others stay fixed eventually the marginal returns from the variable factor will begin to decrease

fixed cost

a cost that does not vary with output

variable cost

costs which change depending on output

total costs , give formula too

cost to produce at a given level of output

total variable cost + total fixed cost

average costs

cost per unit

total cost / quantity produced

marginal cost

the cost of producing one more unit of a good

explain short run average total cost curve shape

is U shaped cuz of law diminishing returns

FOP are fixed, at one point employing more resources will be less productive. therefore marginal output decreases per extra FOP

marginal costs start to increase

explain long run average cost curve

Initially, average costs fall since firms can take advantage of economies of scale. This means average costs are falling as output increases. After the optimum level of output, where average costs are at their lowest, average costs rise due to diseconomies of scale.

what is the lowest point on a LRAC curve

The point of lowest LRAC is the minimum efficient scale. This is where the optimum level of output is since costs are lowest, and the economies of scale of production have been fully utilised.

The reasons for the shape of the marginal cost curves.

U-Shaped Curve:Initially decreases due to increasing specialization, then increases due to diminishing returns.

Marginal cost always passes through the lowest point of the average cost curve.

The reasons for the shape of the average cost curves.

U-Shaped Curve:Similar to the marginal cost curve, reflecting economies of scale and then diseconomies of scale.

The reasons for the shape of the total cost curves.

Rises Steadily:Due to the fixed costs that remain constant regardless of production level.

How factor prices and productivity affect firms' costs of

production and their choice of factor inputs.

If factor inputs become more productive, firms can produce more output with a smaller input. therefore lower unit costs of production.As the AC per unit of one factor input rises, such as labour, firms are likely to switch to cheaper (and generally more productive) factor inputs, such as capital.

4.1.4.5 Economies and diseconomies of scale

internal economies of scale

The cost benefits that an individual firm can enjoy when it expands.

changes within a firm

External economies of scale

The cost benefits that all firms in the industry can enjoy when the industry expands

diseconomies of scale

when output passes a certain point and average costs start to increase per extra unit of output produced.

reason for external diseconomies of scale

whole industry gets bigger then raw material price increases

reason for internal diseconomies of scale

communication could become more difficult as the firm grows - affect staff moral

The relationship between returns to scale and economies of scale

Returns to scale increases when the output increases by a greater proportion to the increase in inputs. For example, if input doubles, and output quadruples, there is said to be increasing returns to scale. This occurs where there are economies of scale and factor inputs become more productive.

total revenue

price x quantity sold

total amount of Money received in a time period from a firms sales

average revenue

TR / quantity sold

revenue per unit sold

marginal revenue

extra revenue earned from the sale of one extra unit.

why is the average revenue curve a firms demand curve

because the average revenue curve is the price of the good. AAAAAAAAA LEARN MORE ADD MORE THID DOESNT MAKE SENSE

relationship between average revenue and marginal revenue

When demand is perfectly elastic, marginal revenue = average revenue.

The relationship between marginal revenue and total revenue

Marginal revenue is calculated by the change in total revenue divided by the change in quantity sold.

what is profit

the difference between total revenue and total costs. TR - TC

normal profits

when tr = tc

the minimum level of profit needed to keep resources in their current use in the long run

Supernormal profit

TR>TC

firms are incentives to join market if they see businesses making a supernormal profit

The role of profit in a market economy

In a free market economy, profit is the reward that entrepreneurs yield when they take risks

Profits can be retained, so they are kept within the firm and not given to shareholders as dividends. This can be a source of finance for firms if they choose to make an investment. It helps them avoid the costs of interest payments if they borrow money.

what's an invention

process of creating a new product or a new way to make a product.

what innovation

act of improving or contributing to existing products.

impact of technology on productivity

improvements in efficiency and productivity, which could lower costs of production for firms. The quality and quantity of goods and services produced might improve.

do monopolies have an incentive to innovate and why

no

they have no competition. This means they are often inefficient and their costs are higher than they could be.

do oligopolies have an incentive to innovate and why

yes

earning supernormal profits and are trying to get ahead of their competitors. This means that technological change is quite fast in oligopolies.