final t1

• What are costs in the production process?

  Payments made by firms in the production process.
• Give an example of a cost incurred by firms.

  Wages
• Why are cost calculations important for businesses?

  They help in calculating profit and loss.
• If the average cost of one unit is $3, what price should be set to make a profit of $1?

  $4
• How do cost calculations assist managers in decision-making?

  They help decide whether to stop production if losses occur.
• What are the types of costs mentioned?

  Fixed Costs, Variable Costs, Average Costs, Total Costs
• Give an example of a fixed cost.

  Rent
• What are fixed costs?

  Costs that do not change as output increases.
• What happens to fixed costs when output is zero?

  They still have to be paid.
• Give an example of a variable cost.

  Wages
• What are variable costs?

  Costs that change as output changes.
• How are total costs calculated?

  Total costs = fixed costs + variable costs.
• What is the formula for average costs?

  Average cost = Total cost / Number of units.
• What is total revenue?

  The income that a business receives from selling its products.
• How is total revenue calculated?

  Total Revenue = Price per item x Quantity sold.
• What is profit?

  A firm earns profit when total revenue exceeds total costs.
• What is break-even analysis?

  It determines the number of units that should be produced and sold to cover all costs.
• What is the margin of safety?

  Margin of Safety = Units produced and sold - Break-even output.
• What are the advantages of break-even charts?

  They help managers find profit or loss at each output level.
• What are the disadvantages of break-even charts?

  They assume all produced units are sold, which is not always true.
• How can break-even be calculated without a chart?

  Break-even level of production = Total fixed costs / Contribution per unit.
• What is the formula for contribution?

  Contribution = Selling price - variable cost per unit.
• What are economies of scale?

  Decrease in average unit cost as production increases.
• How do large firms benefit from purchasing economies of scale?

  They can buy in bulk and receive discounts, decreasing average costs.
• What is technical economies of scale?

  Large firms can afford expensive machinery, increasing efficiency and decreasing average costs.
• What is financial economies of scale?

  Large firms can borrow money easier and at lower interest rates than small businesses.
• What is managerial economies of scale?

  Large firms can employ specialists, increasing efficiency and decreasing average costs.
• What is marketing economies of scale?

  Large firms spread advertisement costs over larger output, decreasing average costs.
• Can firms grow too much?

  Yes, they can experience lower productivity and higher average unit costs.
• What are diseconomies of scale?

  They are factors that lead to increased average unit costs as a business grows.
• What can cause communication problems in large firms?

  More departments and managers can lead to difficulties in communication.
• How can worker demotivation affect a business?

  It can lead to inefficiency and higher average costs.
• What is quality in production?

  Producing a good or service that meets customer expectations.
• Why is quality important for businesses?

  It establishes a brand image and helps attract customers.
• How does high quality affect pricing?

  Higher quality products can command premium prices.
• What is quality control?

  Checking for quality at the end of the production process.
• What is a disadvantage of quality control?

  It can be expensive to hire trained employees for quality checks.
• What is quality assurance?

  Checking for quality at every stage of the production process.
• Who should be responsible for quality assurance?

  Everyone in the organization, starting from employees.
• What are the key definitions related to costs and production?

  • Costs: Payments made by firms in the production process.
  • Fixed costs: Costs that do not change as output increases.
  • Variable costs: Costs that change as output changes.
  • Total costs: Fixed costs + Variable costs.
  • Average total cost: Total cost of making one unit.
  • Revenue: Income from selling products.
  • Average revenue per unit: Total revenue / Number of units sold.
  • Profit: Total revenue - Total costs.
  • Break-even point: Number of units to cover all costs.
  • Economies of scale: Decrease in average unit cost as production increases.
  • Diseconomies of scale: Increase in average unit cost as production increases.