Costs of Production
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| What is the short run? | A period of time during which at least one factor of production is fixed
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| What is the long run? | A period of time during which all factors of production are variable
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| What is an explicit cost? | A cost incurred by a firm when it pays money for something
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| What is an implicit cost? | The opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns and thus does not pay rent.
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| What is a fixed cost? | A cost which does not change with output
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| What is a variable cost? | A cost which changes with output
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| What should all companies do in the short term? | Cover their fixed costs
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| What does the law of diminishing marginal returns say? | As more of a variable factor is added to a fixed factor a point will be reached at which the use of one additional unit of a variable factor will cause an increase in output less than that of the previous unit used
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| Define average cost | The average cost to produce one unit of a good
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| What is normal profit? | The return that sufficiently rewards the risk taking of an entrepreneur
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| What is a marginal cost? | The cost of producing one extra unit
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| What causes the short run average cost curve to slope downwards? | Specialisation of labour & Greater spread of fixed costs
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| What causes the short run average cost curve to slope upwards? | The law of diminishing marginal returns
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| How is the long run average cost curve drawn? | By joining the minimum point of all the short run average cost curves
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| Name 9 internal economies of scale | Use of machinery, division of labour, construction savings, purchasing economies, shipping economies, financial economies, marketing economies, management economies, 24 hour production.
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| Name 6 external economies of scale | Better infrastructure, specialist service firms, R&D units, Subsidiary trades, availability of training courses, supports from public bodies.
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| Define internal economy of scale | Forces within a firm that cause the average cost of a firm to decline as it grows in size
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| Define external economy of scale | Forces outside a firm that cause the average cost of a firm to decline as it grows in size
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| Define internal diseconomies of scale | Forces within a firm that cause the average cost of a firm to increase as it grows in size
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| Define external diseconomies of scale | Forces outside a firm that cause the average cost of a firm to increase as it grows in size
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| Name 5 internal diseconomies of scale | Poor decision making, fall in morale, communication problems, control issues, increase in admin costs
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| Name 3 external diseconomies of scale | Shortages of factors of production, raw material shortage, infrastructural problems
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| Define returns to scale | The rate at which outputs increase in relation to inputs
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| Give six reasons small businesses survive in Ireland | Small market size, consumer loyalty, personal services, traditional markets, nature of the good, membership of groups
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| Name four benefits of small scale enterprises | Quicker decision making, high output per head, fewer HR problems, lower overheads.
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| What is a social cost? | A cost that society has to pay due to the existence of a product
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| What is an external economy of consumption? | When a consumer undertakes an action which benefits a third party for which they are not compensated
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| What is an external diseconomy of consumption? | When an action undertaken by a consumer which imposes a cost on a third for which they are not compensated
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| What is an internal economy of production? | When a producer carries out an activity which benefits a third party for which they are not compensated
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| What is an internal diseconomy of production? | When a producer carries out an activity which imposes a cost on a third party for which they are not compensated
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| Define average revenue | Total revenue divided by quantity
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| What is marginal revenue? | The additional revenue earned by selling an additional unit of a product
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| When should a company produce? | When marginal cost equals marginal revenue and marginal cost is rising
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| What condition must be satisfied if a firm is to survive in the long run? | Average revenue must at least equal average cost
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