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Production
The process of converting inputs (factors of production) into outputs (goods and services).
Factors of Production
Resources including land, labor, capital, and entrepreneurship used in the production process.
Land
Natural resources used in production (e.g., minerals, forests, water).
Labor
Human effort, both physical and mental, is used in production.
Capital
Man-made resources (e.g., machinery, buildings) used in production.
Entrepreneurship
The initiative to combine the other production factors and bear the business risks
Types of Production
Primary, Secondary, and Tertiary categorize activities based on the nature of goods and services produced.
Primary Production
Extraction of natural resources (e.g., farming, fishing, mining).
Secondary Production
Manufacturing and construction (e.g., car production, building houses).
Tertiary Production
Services (e.g., education, healthcare, retail).
Production Processes
Job, Batch, and Flow production methods define how goods are manufactured.
Job Production
Producing unique items tailored to customer requirements.
Batch Production
Producing a limited number of identical items in groups or batches.
Flow Production
Continuous production of identical items on an assembly line.
Productivity
Measure of efficiency, output per unit of input, influenced by technology, skills, management, and economies of scale.
productivity
Factors affecting _______:
Technology advancements
Worker skills and training
Management practices
Economies of scale
Costs
Fixed, Variable, Total, Average Fixed, Average Variable, Average Total, and Marginal Costs are key concepts in ____ analysis.
Fixed Costs (FC)
Costs that do not vary with output (e.g., rent, salaries).
Variable Costs (VC)
Costs that vary directly with output (e.g., raw materials)
Total Costs (TC)
The sum of fixed and variable costs: TC = FC + VC
Average Fixed Costs (AFC)
Fixed cost per unit of output: AFC = FC/Q
Average Variable Costs (AVC)
Variable cost per unit of output: AVC = VC/Q
Average Total Costs (ATC)
Total cost per unit of output: ATC = TC/Q
Marginal Costs (MC)
The additional cost of producing one more unit of output: MC = ΔTC/ΔQ
Short-Run Costs
The period in which at least one factor of production is fixed.
Long-Run Costs
The period in which all factors of production can be varied.
Firms experience economies and diseconomies of scale.
Total Revenue (TR)
Total income from sales: TR = P × Q (Price x Quantity)
Average Revenue (AR)
Revenue per unit sold: AR = TR/Q
Marginal Revenue (MR)
Additional revenue from selling one more unit: MR = ΔTR/ΔQ
Perfect Competition
Firms are price takers, AR = MR = Price.
Example: Agricultural products like wheat.
Monopoly
Single seller, AR and MR diverge, MR < AR.
Example: A local utility company.
Oligopoly
Few firms, kinked demand curve, interdependent pricing.
Example: Automobile industry
Monopolistic Competition
Many firms, product differentiation, and some pricing power.
Example: Restaurants
Normal Profit
Supernormal (Economic) Profit
2 types of profit
Normal Profit
Minimum profit necessary to keep a firm in business.Occurs when TR = TC.
Supernormal (Economic) Profit
Profit over and above normal profit.
Occurs when TR > TC
Profit Maximization
Objective: Firms aim to maximize the difference between total revenue and total costs.
Marginal Cost (MC) = Marginal Revenue (MR)
Condition for Profit Maximization
Accounting Profit
Total revenue minus explicit costs.
Example: TR is £1,000, explicit costs are £600, accounting profit is £400
Economic Profit
Total revenue minus both explicit and implicit costs (opportunity costs).
Example: TR is £1,000, explicit costs are £600, implicit costs are £200, economic profit is £200
Break-Even Analysis
Determines the level of output where total revenue equals total costs, indicating no profit or loss.
Break-Even Point
Level of output where total revenue equals total costs (no profit or loss)
Break-Even Formula
Break-even output = Fixed Costs / (Price - Variable Cost per unit)
what formula?
Impact of Changes in Costs and Revenue
Cost Increases, Revenue Increases, Efficiency Improvements
Cost Increases
Higher fixed or variable costs reduce profit.
Example: Increase in raw material prices
Revenue Increases
Higher prices or greater sales volume increase profit.
Example: Launching a successful advertising campaign
Efficiency Improvements
Lower costs, and increase productivity, leading to higher profit margins.
Example: Implementing a new production technology
Cost Curves
What type of curve?
MC Curve
ATC and AVC Curves
AFC Curve
MC Curve
Typically U-shaped due to initially decreasing and then increasing marginal costs
ATC and AVC Curves
U-shaped, with AVC lying below ATC.
AFC Curve
Downward sloping as fixed costs are spread over more units
Revenue Curves
what type of curve?
TR Curve
AR and MR Curves
TR Curve
Upward sloping, but slope varies by market structure
AR and MR Curves
In perfect competition, ______________ at the market price.
AR, MR
In monopoly and imperfect competition, ___ is downward sloping, and ___ lies below AR
profit-maximizing
The intersection of MR and MC curves determines ____________ output
profit
The difference between TR and TC at this output indicates the level of ____
Note 
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