Micro Topic 9:Production, Costs and Revenue

Q: What is productivity?

A: Productivity is the output produced per unit of input, such as output per worker.

Q: How do you calculate labour productivity?

A: Labour productivity = total output ÷ number of workers.

Q: What is production?

A: Production is the total output of goods and services produced by a firm or the economy.

Q: What is the difference between production and productivity?

A: Production is total output; productivity is output per input.

Q: What is specialisation?

A: Specialisation is when individuals, firms, or countries focus on producing a limited range of goods or services.

Q: What are the benefits of specialisation?

A: Specialisation can increase efficiency, output, quality, and lower average costs.

Q: What is the division of labour?

A: Division of labour is when the production process is broken down into different tasks performed by different workers.

Q: What is the short run in economics?

A: The short run is a period where at least one factor of production (e.g. capital) is fixed.

Q: What is the long run in economics?

A: The long run is a period where all factors of production are variable.

Q: What is the law of diminishing returns?

A: It states that adding more of a variable factor to a fixed factor will eventually reduce marginal output.

Q: What is total cost (TC)?

A: Total cost is the sum of total fixed cost and total variable cost (TC = TFC + TVC).

Q: What is average cost (AC)?

A: Average cost = total cost ÷ quantity of output produced.

Q: What is marginal cost (MC)?

A: Marginal cost is the cost of producing one extra unit of output.

Q: What is the typical shape of the marginal cost curve?

A: It is U-shaped — falling at first, then rising due to diminishing returns.

Q: What are economies of scale?

A: Economies of scale are cost savings a firm experiences as it increases output.

Q: What are internal economies of scale?

A: Cost savings from within the firm, such as technical, managerial, or financial economies.

Q: What are external economies of scale?

A: Cost savings that arise from industry growth, like shared suppliers or a skilled local workforce.

Q: What are diseconomies of scale?

A: Rising average costs as firms grow too large, often due to coordination or communication problems.