Production, Costs and Firms: notes

Types of production

• Primary: taking from nature, such as farming and mining.
• Secondary: making goods, such as milling maize.
• Tertiary: services, such as banking and transport.

Costs and profit

• Fixed costs: do not change with output, such as rent.
• Variable costs: change with output, such as raw materials.
• Total revenue: price times quantity sold.
• Profit: total revenue minus total cost.
• Average cost: total cost divided by output.

Scale and firms

• Economies of scale: average cost falls as the firm grows, for example by buying in bulk.
• Diseconomies of scale: a very large firm becomes hard to manage and costs rise.
• Sole trader: one owner, unlimited liability. Company: limited liability and shares.
• Co-operative: owned by members who share the profit.