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Production Costs and Revenues - Coggle Diagram
Production Costs and Revenues
Production -
The process of converting inputs into outputs
Productivity -
output per unit of input per period of time
Innovation - act of improving existing products
Invention - process of creating a new product
Monopolies are unwilling to innovate due to little competition, whereas Oligopolies need to innovate to get on top of competitors
Specialisation -
each worker, firm, region, country performs a specific task in the production process
Advantages -
higher output and potentially higher quality
greater variety of goods and services produced
more economies of scale
helps firm lower costs
Disadvantages -
work becomes repetitive, workers lack motivation
more structural employment, skills may not transfer
variety could decrease
Absolute Advantage - a country can produce more of a good with the same input
Money's Functions
A store of value -
Money is able to hold its value so can be used as a valid payment
A method of deferred payment -
money can allow for debts to be created, people can therefore purchase things and pay later on
Unit of Account (Measure of Value) -
money allows the comparisons of value between different goods and labour
Medium of Exchange -
money eliminates the need for a double coincidence of wants and bartering
Costs of Production
Variable Costs - costs that vary with output
Total Costs = Variable Costs + Fixed Cost
Fixed Costs - costs which do not vary with output (ony in short run)
Average Cost = total cost / output
Marginal Cost - cost of producing one extra
Law of Diminishing Returns - the point where employing a factor of production decreases the marginal output
Marginal Return - extra output per extra factor employed (labour)
Returns to Scale - the change in output after an increase in factor inputs
Decreasing - where the percentage increase in inputs is greater than the percentage increase in outputs
Constant - where the percentage increase in inputs is the same as outputs
Increasing - where there is an increase in percentage output due to a increase in inputs
Economies of Scale - as output increases, average costs fall
Internal - where a firms average costs fall due to the growth of a firm
External - when the growth of an industry the firm is apart of, leads to a fall in average costs.
Diseconomies of scale - as output increase, average costs rise
Causes -
lost of control, coordination and coopirations
Revenue - quantity sold * price
average revenue = total revenue / output
marginal revenue - the revenue gained by selling one more good or service
Normal Profit - the minimum profit required to keep entrepreneurs supplying their enterprise
SuperNormal Profit - any profit higher than normal profit
Roles of Profit
source of investment for firms
profits can be a signal to firms to enter the market if a market is more profitable
