3.6

Firms and production

9 flashcards to master Firms and production

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Definition Flip

Define 'production' in economics and provide an example.

Answer Flip

Production is the process of converting inputs (resources) into outputs (goods and services).

Example: a bakery uses flour, sugar, and labor (inputs) to produce bread (output).
Key Concept Flip

Explain the concept of 'productivity' and how it's measured.

Answer Flip

Productivity measures the efficiency of production, specifically output per unit of input. It's calculated as total output divided by total input (

Example: output per worker or output per machine hour).
Definition Flip

What is 'specialisation' and why is it important in increasing productivity?

Answer Flip

Specialisation is when individuals or firms focus on producing a limited range of goods or services. It increases productivity by allowing workers to develop expertise and become more efficient in their tasks.

Definition Flip

Describe the 'division of labour' and its relationship to specialisation.

Answer Flip

Division of labour involves breaking down a complex production process into smaller, simpler tasks, each performed by a different worker. It is a form of specialisation that increases efficiency.

Definition Flip

What are 'economies of scale'? Give one example.

Answer Flip

Economies of scale refer to the cost advantages that a firm gains as its production scale increases. An example is bulk buying, where larger firms can negotiate lower prices for raw materials.

Key Concept Flip

Differentiate between 'internal' and 'external' economies of scale.

Answer Flip

Internal economies of scale are cost advantages that arise from within the firm itself (

Example: improved management). External economies of scale arise from factors outside the firm, such as a skilled local labor pool.
Definition Flip

What are 'diseconomies of scale'? Give one example.

Answer Flip

Diseconomies of scale occur when a firm's costs per unit increase as it grows larger.

Example: communication problems within a large company can lead to inefficiencies and increased costs.
Definition Flip

Explain the difference between 'cost', 'revenue', and 'profit'.

Answer Flip

Cost is the expense incurred in producing a good or service. Revenue is the income a firm receives from selling its goods or services. Profit is the difference between total revenue and total cost (Profit = Total Revenue - Total Cost).

Key Concept Flip

A firm's total revenue is $100,000 and its total costs are $75,000. Calculate the firm's profit.

Answer Flip

Profit = Total Revenue - Total Cost. In this case, Profit = $100,000 - $75,000 = $25,000. The firm's profit is $25,000.

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3.5 Firms 3.7 Firms' costs, revenue and objectives

Key Questions: Firms and production

Define 'production' in economics and provide an example.

Production is the process of converting inputs (resources) into outputs (goods and services).

Example: a bakery uses flour, sugar, and labor (inputs) to produce bread (output).
What is 'specialisation' and why is it important in increasing productivity?

Specialisation is when individuals or firms focus on producing a limited range of goods or services. It increases productivity by allowing workers to develop expertise and become more efficient in their tasks.

Describe the 'division of labour' and its relationship to specialisation.

Division of labour involves breaking down a complex production process into smaller, simpler tasks, each performed by a different worker. It is a form of specialisation that increases efficiency.

What are 'economies of scale'? Give one example.

Economies of scale refer to the cost advantages that a firm gains as its production scale increases. An example is bulk buying, where larger firms can negotiate lower prices for raw materials.

What are 'diseconomies of scale'? Give one example.

Diseconomies of scale occur when a firm's costs per unit increase as it grows larger.

Example: communication problems within a large company can lead to inefficiencies and increased costs.

About Firms and production (3.6)

These 9 flashcards cover everything you need to know about Firms and production for your Cambridge IGCSE Economics (0455) exam. Each card is designed based on the official syllabus requirements.

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