Hi guys.
Today we will focus on production and costs. This content is mainly for 2nd year students but 1st year students can also benefit here, especially for Q1 and Q2.
1) Define production
2) What are the factors of production and what are their reward payments?
3) Distinguish between a fixed factor and a variable factor of production
4) Give two examples of fixed costs.
SCROLL DOWN FOR THE ANSWERS BELOW!
ANSWERS
1) Define production
Production occurs when firms turn factor inputs into outputs.
2) What are the factors of production?
Factors of production are land, labour, capital, enterprise. The reward payment for land is rent. The reward payment for labour is the wage. For capital, the reward payment is interest. Finally, for enterprise, the reward payment is profit.
3) Distinguish between a fixed factor and a variable factor of production
A fixed factor is a factor of production that cannot be changed in the short run. A good example of a fixed factor is capital. In the short-run period, if a firm wants to increase its output then the only variable factor assumed is labour. It is easy to hire and fire workers but to increase your capital is very hard and expensive. If a firm wanted to increase their capital and therefore increase output, they may need to build another factory, buy new machines etc. To put it simply, a fixed factor of production is one that is not easily increased.
4) Give two examples of fixed costs.
One example of a fixed cost is rent. No matter what output the firm is producing at, the rent payments are the same. E.g. a firm rents an office space at £1000 per month. That month, the firm sold nothing. So even if they sell nothing, they still have to pay £1000 as costs. This is why the cost is fixed. It must be paid no matter what.
Another example of a fixed cost is maintenance costs. A car rental firm leases cars to their customers. No matter how many customers, the firm must pay maintenance on the car - the car must be serviced, it must get an MOT each year, it must be washed and cleaned etc.
EXTRA INFO: Another term for a fixed cost is an "overhead".
We hope you enjoyed reading this content. Want to pass your Economics exams? Hire a specialist economics tutor today. At mrbanks.co.uk, we supply online Economics tuition to support you through your exams.
Online tuition provides so many benefits.
It’s cheaper. It’s less time-consuming. It’s effective.
Want to try before you buy? Contact us to book a trial lesson. You can see if online tuition is right for you.
Contact us today and book a trial lesson with an online Economics tutor.
Follow our social media to keep up to date with revision notes, new online classes or just to ask general questions about economics a-level!