Production, Costs, Revenue And Profit
Overview
A bakery and a national supermarket chain both sell bread. The bakery pays more for every sack of flour it buys, more per loaf for its ovens, more per delivery for its van. It is not badly run. It is simply small, and in this part of economics size changes the arithmetic. Understanding why is the difference between describing a business and explaining one.
This lesson gives you the four quantities every producer watches: costs, revenue, profit and productivity. You will separate fixed costs from variable ones and total figures from averages, calculate profit from raw sales data, and work out how much output a workforce produces per head. Then you will meet economies of scale, the reason a bigger firm can undercut a smaller one, and diseconomies of scale, the reason getting bigger eventually starts to hurt. Along the way you will meet the awkward question the examiners keep returning to: what happens when the pursuit of profit runs into what is right.
Objectives
- Business objectives
- Types of costs
- Types of revenue
- Profit
- The importance of cost, revenue and profit for producers
- Moral and ethical considerations
- Production and productivity
- The meaning and importance of productivity
- The factors that influence productivity
- Economies of scale
- The meaning of economies of scale
- Types of economies of scale
- Diseconomies of scale
Mind map
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Flashcards
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Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on Production, Costs, Revenue And Profit. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which of the following is most likely to be a variable cost for a bakery? A. Building insurance B. Flour C. The manager's salary D. The rent on the shop Answer: B
- A firm's total revenue is $80,000 and its total costs are $63,500. What is its profit? A. $16,500 B. $63,500 C. $80,000 D. $143,500 Answer: A
- A firm pays a lower price per tonne to its suppliers as its output increases. Which economy of scale is this? A. Financial B. Managerial C. Purchasing D. Risk-bearing Answer: C
- A workshop with 5 workers produces 240 units a day. What is the output per worker? A. 24 units B. 48 units C. 235 units D. 1,200 units Answer: B
- Which of the following is a cause of diseconomies of scale? A. Bulk-buying discounts on raw materials B. Communication becoming slower as the firm grows C. Fixed costs being spread over more units D. Lower interest rates on borrowing Answer: B
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Recommended Books
Further learning from open sources
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Textbook section
Costs in the Short Run
Understand the relationship between production and costs
"Principles of Economics 2e: Costs in the Short Run" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/principles-economics-2e/pages/7-3-costs-in-the-short-run. Access for free at https://openstax.org/books/principles-economics-2e/pages/1-introduction
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Textbook section
Costs in the Long Run
Calculate long run total cost
"Principles of Economics 2e: Costs in the Long Run" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/principles-economics-2e/pages/7-5-costs-in-the-long-run. Access for free at https://openstax.org/books/principles-economics-2e/pages/1-introduction
Published by other organisations under open licences, credited as they ask. Links open their websites.
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