2 - the objective of firms Flashcards
profits
when total income or revenue is greater than the total costs
total revenue
what the firm receives for the sale of it’s product
price x number sold
average revenue
total revenue ÷ number sold
marginal revenue
the addition to total revenue from the production of an extra product
total profit
total revenue minus total costs
normal profit
the amount required to keep a factor employed in its present activity in the long run
profit maximisation
where a firm chooses a level of output where marginal revenue equals marginal costs
supernormal profit
a return above normal profit- a surplus payment
Sub-normal profit
profit below normal which should lead to the firms leaving the industry
entrepreneur
individual who organises the factors of production in order to make a profit
public limited company (plc)
a firm owned by a group of shareholders whose shares can be traded on the London stock exchange
corporation
a private enterprise firm incorporated with the register of companies
director
an individual elected by a company’s shareholders to set corporate policies
perks
non-monetary benefits like an expensive car provided by the firm
dividends
financial return from the ownership of shares in a firm
share options
the right to buy or sell stock at an agreed price
activist shareholders
shareholders that will clamour for greater dividends and may mobilise other shareholders to oppose the management
hostile bid
a bid to buy shares in an attempt to gain control of the firm which is opposed by the firms directors who fear job loss
satisficing
the firm is producing satisfactory but not maximum profit
stakeholders
firms, organisations or individuals with an interest in the firm
market share
percentage of the total market held by the company
market power
when a firm has the ability to exert significant influence over the quantity of goods traded or the price at which they are sold
rational choice theory
where all costs and benefits are considered before a decision is taken
capital market discipline
where firms may be taken over by other firms if they appear to be making lower profits than their assets would suggest
delisting
refers to the practice of removing the stock of a company from a stock exchange so that investors can no longer trade shares of the stock on that exchange
innovation
turning invention into commercial use; introducing a new product or process
horizontal integration
where 2 firms at the same stage of production combine
vertical integration
where firms at different stages of production combine
conglomerate merger
where firms with no obvious connection combine
lateral merger
a particular type of horizontal merger
