Chapter 4 - Strama PDF

Economies of scale - A reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases. Fixed cost of production - Costs such as plant and equipment, which are relatively fixed, meaning that they do not increase in the numb...

Economies of scale - A reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases. Fixed cost of production - Costs such as plant and equipment, which are relatively fixed, meaning that they do not increase in the number of units produced. General and Administrative Costs (G&A) - Expenses and taxes that are directly related to the general operation of the company, and the executive salaries, general support, and taxes related to the overall administration of the company. Task Specialization - Breaking a large process into smaller tasks that require specialized knowledge. Employee Specialization - Increased efficiency that results when employees perform a narrow range of tasks over and over again, leading them to acquire specialized knowledge that helps them complete the task more efficiently. Scale Curve - A graphic representation of the relationship between cost per unit and scale (volume) of production in a given time period. Minimum Efficient Scale (MES) - The smallest level of output (unit volume) that a plant or firm can produce to minimize its long-run average costs. In a graphic presentation of output/unit volume (x-axis) and cost per unit (y-axis), it is the output level where costs per unit flatten and no longer continue going down with increased output. Diseconomies of Scale - An increase in marginal cost when output is increased. Economies of Scope - The average cost of production decreases as a result of increasing the number of different goods produced. Cost Advantage Strategy - A strategy in which the unique value offered to customers is lower-priced products or services. Learning Curve - The concept that labor costs per unit decrease with increase in volume due to learning. New skills or knowledge can be quickly acquired initially, but subsequent learning becomes much slower. - It is a tool that managers can use to determine the contribution of human learning on the part of employees to reductions in costs per unit. Experience Curve - A representation of the relationship between cumulative volume and product cost. - It shows how costs per unit change with increases in cumulative volume produced. Law of Experience - Cost per unit decreases with increase in cumulative volume of production. Relative Cost  - The costs incurred by one company compared to the costs paid by a competitor. Proprietary Knowledge - Information that is not public and that is viewed as the property of the holder. Inputs - Resources such as people, raw materials, energy, information or financing that are put into a system (such as economy, manufacturing plant, computer system, etc.) to obtain a desired output. - Are any purchases that are made by a firm in the course of conducting business activities. Business Model - The plan and set of activities implemented by a company to offer unique value and generate revenue and make a profit from operations. Value Chain - The sequence of all activities that are performed by a firm to turn raw materials into the finished product that is sold to a buyer.