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

OUTPUT Number of cars	FIXED COSTS	VARIABLE COSTS (£250 per car)	TOTAL COSTS	AVERAGE COSTS (total costs / output)
1	2500	250	2750	2750
5	2500	1250	3750	750
10	2500	2500	5000	500
20	2500	5000	7500	375
50	2500	12500	15000	300
100	2500	25000	27500	275
1000	2500	250000	252500	252

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?

These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email

 

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