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Economics > 20-22 Firm > Flashcards

20-22 Firm Flashcards

1
Q

Define industry

A

group of firms producing the same product

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2
Q

Define the quaternary sector (2)

A

knowledge based service industries

information technology

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3
Q

Determinants for the size of firms (5)

A

age of firms

availability of financial capital

type of business organisation

internal economies/diseconomies of scale

size of market

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4
Q

Why firms may choose to stay small (6)

A

small size of market

consumer/owner preference

flexibility

lack of financial capital

location

government support

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5
Q

Define internal growth

A

firm increase in size by firm enlarging existing plants/opening new ones

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6
Q

Define rationalisation

A

eliminating unnecessary equipment to make firm more efficient

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7
Q

Define external growth (2)

A

increase in firm size

caused by merging/taking over other firm

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8
Q

Define a horizontal merger

A

merging with firm that produces same product at same stage of production

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9
Q

Define a forward vertical merger

A

merging with firm further forward in supply chain

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10
Q

Define a backward vertical merger

A

merging with firm backward in supply chain

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11
Q

Define a conglomerate merger

A

merging with firm producing different products

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12
Q

Advantages of vertical integration (3)

A

costs decrease

more control over their business (less reliant on other firms)

acquires highest profits when product sold to consumers

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13
Q

Advantages of external growth (2)

A

immediate increase in market share/income/assets

gain skills of staff working for other firm

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14
Q

Advantage of horizontal integration (5)

A

more promotion opportunities

market share increase (more customers gained)

increases potential economies of scale

increased assets

increased intellectual property

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15
Q

Disadvantages of horizontal integration (3)

A

different business methods

decrease communication (cause diseconomy of scale)

employees can be fired

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16
Q

Disadvantages of external growth (3)

A

differing business methods

more responsibility for owner

merge may be outside owner experience

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17
Q

Advantages of internal growth (3)

A

owners understand strength/weakness of firm

less debt (uses own profits for growth)

workers more motivated - have been part of firm for long time

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18
Q

Disadvantages of internal growth (4)

A

longer to grow

limited resources for growth

more time for competitors to exploit firm’s weaknesses

less opportunity for promotion

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19
Q

Disadvantage of vertical integration (2)

A

lack of knowledge to operate acquired firm

no EoS (production process in each stage different)

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20
Q

Advantages of conglomerate integration (3)

A

allows for risk diversion

gains synergies - different firms can benefit from each other

form of investment - profit can be used for investment

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21
Q

Disadvantages of conglomerate integration (2)

A

lack of knowledge to operate acquired firm

increase in conglomerate size –> decreased competition –> monopoly

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22
Q

Define internal economies of scale

A

lower long term average costs from firm growing in size

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23
Q

Define external economies of scale

A

lower long term average costs from industry growing in size

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24
Q

Define internal diseconomies of scale

A

higher long term average costs from firm growing too large

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25
Q

Define external diseconomies of scale

A

higher long term average costs from industry growing too large

26
Q

Define a purchasing economy of scale (2)

A

suppliers provide volume-based discounts on raw materials

lowers average total costs

27
Q

Define managerial economy of scale (3)

A

employing specialised managers

managers more efficient

lowers average total costs

28
Q

Define financial economy of scale

A

banks charge lower interests rates to larger firms as they less risky

29
Q

Define marketing economies of scale

A

marketing costs spread over more units of output

30
Q

Define technical economies of scale

A

new machinery that lowers production costs

31
Q

Define risk-bearing economies of scale (4)

A

produce wide range of products

supply products in different locations

spreads out risk of failure

lowers average total costs

32
Q

Causes of internal diseconomies of scale (3)

A

miscommunication

lack of control

decreased employee relations

33
Q

Causes of external economies of scale (4)

A

skilled labour force

good reputation

improved infrastructure

specialist suppliers of raw materials

34
Q

Causes for external diseconomies of scale (3)

A

traffic of transport used by industry = increased traffic costs

large industries may attract government regulation

more demand for skilled labour = increased wages

35
Q

Define production

A

process of turning resources into goods

36
Q

Define productivity (2)

A

output per factor of production per hour

measure of efficiency of FoPs

37
Q

Define labour productivity (2)

A

average output per worker

total output/number of workers

38
Q

Define capital productivity (2)

A

average output per machine

total output/number of machines

39
Q

Factors influencing production decisions (5)

A

time/mobility of FoPs

balance of FoPs

productivity of FoPs

cost of FoPs

Risk of FoPs

40
Q

Define labour intensive production

A

production process that uses high proportion of labour

41
Q

Define capital intensive production

A

production process that uses high proportion of capital

42
Q

Advantages of labour intensive production (4)

A

workers can provide new ideas

can provide personal service to consumers

can respond to consumer feedback

number of workers can be changed with demand

43
Q

Disadvantages of labour intensive production (3)

A

productivity can vary (absenteeism)

shortages of skilled labour

worker more costly as requires wage and non-wage benefits

44
Q

Advantages of capital intensive production (4)

A

gains technical economies of scale

more consistent

production maintained for long time

no industrial action

45
Q

Factors influencing demand for capital (5)

A

price of capital goods

price of labour

interest rate

technology

expectations on future

46
Q

Define fixed costs

A

costs not affected by output

47
Q

Examples of fixed costs (2)

A

rent

insurance

48
Q

Shape of curve of fixed costs

A

horizontal

49
Q

Define average fixed costs (2)

A

fixed costs per unit of output

total fixed costs/output

50
Q

Shape of curve for average fixed costs

A

downwards sloping exponential

51
Q

Define variable costs

A

costs that change with output

52
Q

Examples of variable costs (3)

A

steel

raw materials

workers

53
Q

Variable cost curve

A

Upwards sloping graph

54
Q

Define average variable costs (2)

A

variable cost per unit of output

TVC/ouput

55
Q

Average variable cost curve

A

U-shaped

56
Q

Define total cost (3)

A

total amount spent on factors of production

FC + VC

ATC x output

57
Q

Curve of Total costs (2)

A

same as TVC

shifted up by TFC

58
Q

Define revenue (2)

A

money earned from sales

price x quantity sold

59
Q

Define average revenue (2)

A

price

money earned per unit sold

60
Q

Firm objectives (5)

A

survival

growth

social welfare

profit satisficing

profit maximisation

61
Q

Define profit satisficing (2)

A

Making just enough dividends to keep shareholders happy

While pursuing other objectives

62
Q

Define privatisation

A

sale of public sector firms to private sector

Economics (4 decks)

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