gcse economics - business finance - average costs and scale of production

AVERAGE COSTS

The cost per unit of output. It is equal to total cost divided by output.

SCALE OF PRODUCTION

The number of goods and services produced. Large scale is a high level of production e.g. 100 cars a week. Small scale could be 10 cars per week

Observations

- Fixed costs remain the same however many are produced
- Variable costs increase with output
- Total costs are FC + VC
- Average costs are found by dividing TC by output
- Average costs fall as output increases
- This is because fixed costs are spread out over more units of output
- This is an example of economies of scale

ACTION

A Copy out the table and leave the columns blank (apart form output). Use the example from the previous sheet to try and complete the table.

 SMART THINKING

B What other advantages may arise from increasing the scale of production?
C What disadvantages may arise from increasing the scale of production?