39 terms in 4.1.4
Costs of production
Fixed costs stay the same no matter how much a firm produces. Variable costs rise and fall as output changes.
Production, costs and revenue
Costs of production
Total cost is everything a firm spends to produce a given output. Average cost is that total split across each unit prod
Production, costs and revenue
Costs of production
In the short run, at least one input — like a factory — stays fixed, so some costs cannot change. In the long run, a fir
Production, costs and revenue
Costs of production
Cost curves have specific shapes because adding more workers to a fixed factory first boosts efficiency, then causes ove
Production, costs and revenue
Costs of production
A firm's costs depend on two things: what it pays for its inputs and how much output those inputs produce. Higher wages
Production, costs and revenue
Costs of production
Understanding how costs behave is central to explaining why firms make the decisions they do. This subtopic breaks costs
Production, costs and revenue
Economies and diseconomies of scale
Economies of scale are cost advantages a firm gains as it grows. Internal economies come from inside the firm itself. Ex
Production, costs and revenue
Economies and diseconomies of scale
Diseconomies of scale occur when a firm grows so large that its cost per unit starts to rise. Poor communication and man
Production, costs and revenue
Economies and diseconomies of scale
Returns to scale describes how output changes when a firm scales up all its inputs together. This directly determines wh
Production, costs and revenue
Economies and diseconomies of scale
As a firm grows, its cost per unit first falls, then eventually rises. These two forces — economies and diseconomies of
Production, costs and revenue
Economies and diseconomies of scale
Some firms find that average costs fall as they grow, then stay flat — never rising again. Economists draw this as an L-
Production, costs and revenue
Economies and diseconomies of scale
The minimum efficient scale (MES) is the smallest output level at which a firm fully exhausts its economies of scale. At
Production, costs and revenue
Economies and diseconomies of scale
As a firm grows in the long run — the period in which all inputs can be varied — it can benefit from economies of scale,
Production, costs and revenue
Marginal, average and total revenue
A firm earns revenue by selling its output. Total revenue is all the money it receives. Average revenue is the amount ea
Production, costs and revenue
Marginal, average and total revenue
Average revenue (AR) is the price a firm receives per unit sold. Because price and quantity demanded are the same relati
Production, costs and revenue
Marginal, average and total revenue
Marginal revenue (the extra income from selling one more unit) always falls faster than average revenue (income per unit
Production, costs and revenue
Marginal, average and total revenue
When marginal revenue — the extra income from selling one more unit — is positive, total revenue rises. When marginal re
Production, costs and revenue
Marginal, average and total revenue
Revenue is the income a firm earns from selling its output, and it can be measured in three ways: total revenue (TR) — a
Production, costs and revenue
Production and productivity
Production is the process firms use to turn inputs — like workers and machinery — into finished goods or services. A car
Production, costs and revenue
Production and productivity
Productivity measures how much output a firm produces per unit of input. Labour productivity specifically measures outpu
Production, costs and revenue
Production and productivity
At its core, production is the process of combining inputs — the factors of production such as labour (workers) and capi
Production, costs and revenue
Profit
Profit is what a firm keeps after paying all its costs. A firm earns it when the money from sales exceeds everything it
Production, costs and revenue
Profit
Normal profit is the minimum a firm needs to stay in a market. Supernormal profit is any extra earned above that minimum
Production, costs and revenue
Profit
Profit does three jobs in a market economy. It signals where resources are needed, rewards risk-taking, and funds future
Production, costs and revenue
Profit
When a firm's total revenue — the income it earns from sales — exceeds its total costs, the difference is profit. A-leve
Production, costs and revenue
Specialisation, division of labour and exchange
Specialisation means workers or firms focus on one task or product. This raises output per worker and cuts the cost of p
Production, costs and revenue
Specialisation, division of labour and exchange
When workers specialise in producing one thing, they need a reliable way to trade for everything else. Money solves this
Production, costs and revenue
Specialisation, division of labour and exchange
When workers or firms focus on a narrow task or product — a process called specialisation and division of labour — outpu
Production, costs and revenue
Technological change
Invention means creating a completely new idea or product. Innovation means turning that idea into something firms actua
Production, costs and revenue
Technological change
New technology changes how firms make things. It usually raises productivity — output per unit of input — and cuts costs
Production, costs and revenue
Technological change
New technology can create products and entire markets that never existed before. It can also wipe out existing markets b
Production, costs and revenue
Technological change
New technology can change who dominates a market and how many firms survive in it. A single firm with a powerful new tec
Production, costs and revenue
Technological change
Advances in technology reshape how firms produce goods and services, cutting costs, raising productivity (output per uni
Production, costs and revenue
The law of diminishing returns and returns to scale
The short run is the period when a firm cannot change at least one input, such as its factory size. The long run is when
Production, costs and revenue
The law of diminishing returns and returns to scale
Total returns measure all output a firm produces. Average returns measure output per worker. Marginal returns measure th
Production, costs and revenue
The law of diminishing returns and returns to scale
When a firm keeps adding workers but cannot add more machinery, each extra worker eventually adds less output than the o
Production, costs and revenue
The law of diminishing returns and returns to scale
Returns to scale describes what happens to a firm's total output when it increases all of its inputs by the same proport
Production, costs and revenue
The law of diminishing returns and returns to scale
Returns to scale describe what happens to output when a firm increases all its inputs by the same proportion. Output can
Production, costs and revenue
The law of diminishing returns and returns to scale
How output responds to adding more inputs depends critically on whether a firm can change all of its inputs or only some
Production, costs and revenue