Unit 4:Production, Costs & Revenue

What is meant by production in economics?

The process of converting inputs into final outputs

What is productivity?

The output produced per unit of input

What is labour productivity?

Output per worker or per hour worked

What is meant by specialisation?

The concentration of production on a narrow range of goods and services.

What are the benefits of specialisation?

-Increases efficiency

-Increases output

-Reduces average cost

What is meant by divisions of labour?

Occurs after specialization, where the production process is broken down into separate, smaller tasks

What are the benefits of division of labour?

-Increases speed

-Increases skill

-Reduces unit cost

Why does specialisation require a medium of exchange?

Individuals and firms need a way to trade goods and services

What is the difference between the short run and long run?

-Short run has at least one fixed factor

-Long run all factors are variable

What are marginal, average and total returns?

-Marginal return = extra output from one more unit of input

-Average return = total output ÷ units of input

-Total return = total output from all inputs