3.1 Business Behaviour Flashcards
Why do some firms stay small
-Size of market may be small
-Lack of economises of scale
-Limited access to finance
Why do firms want to grow
-Economies of scale
-To increase market share
-To reduce risk
What is a private sector firm
Where firms that are owned by private individuals
What is a public sector firm
A firm which is owned by the government
What is an example of a public sector firm
-NHS
-Network Rail
What is an example of a private sector firm
-Apple
-Amazon
What is a non profit organisation
Firms which primary motives is not for profit
What is profit organisation
Firms that aim to maximise profits
What is an example of an non profit organisation
-BBC
-WWF
What is organic growth
Internal growth where the business does not grow through an acquisition
What is an advantage of organic growth
-Less risk
-Maintains business culture
-No need for restructuring
What is a disadvantage of organic growth
-Growth will be slower
-May decrease competitiveness in business
-Firms may become too specialised
What is exeternal growth
A firm growing by being bought out by another firm through a merger of acquisition
What is horizontal integration
Where a firm merges with a firm at the same production stage/process
What are the advantages of horizontal integration
-To increase market share
-To gain economies of scale
-To eliminate a competitor
What are the disadvantages of horizontal integration
-Diseconomies of scale
-Increased fixed costs
-Some workers many lose their jobs due to duplication of jobs
What is vertical integration
Where a firm merges with another firm which is at a different stage in the production process
What is backward integration
Where a firm mergers with a supplier
What is forward integration
Where a firm mergers with a firm that is ahead of them in the production process
What is an advantage of Backward integration
-More control over raw material and make them more guaranteed
-Can prevent competitors buying from the same suppliers
What is a disadvantage of Forward integration
-Risk of making a loss
What is a disadvantage of Backward integration
-Diseconomies of scale
-May not have the correct knowledge
What is an advantage of Forward integration
-Can help lead to an increase in profits
What is conglomerate integration
When a firm buys another firm that is completely unrelated to each other
What is an advantage of conglomerate integration
-Spreads the risk
-Brand gains more recognition
What is a disadvantage of conglomerate integration
-Culture clash
-Lack of knowledge inn new area
What is a demerger
The separation of large company into two or more smaller ones
List the reasons for a demerger
-To avoid diseconomies of scale
-To raise finance
-To increase profit
-To meet demands of regulators
What is Total Revenue and Equation
- The amount of money the firm earns
- Price x Quantity
What is Average Revenue and the Equation
- The amount the firm receives per unit sold
- Total Revenue / Quantity
What is Marginal Revenue and the Equation
- The change in total revenue from selling one more unit of output
- Change in revenue / Change in quantity
How do you work out Total Cost
Total Variable Cost + Total Fixed Cost
How do you work out Total Fixed Cost
Total Cost - Total Variable Cost
How do you work out Average Total Cost
Total Cost / Quantity
What is Allocative Efficiency
Where resources are allocated to maximise utility
Where can you find Allocative Efficiency
P=MC
What is Productive Efficiency
Where a firm produces a good or service at its lowest possible cost
What is Dynamic Efficiency
The ability to innovate
What is X-Inefficiency
Where a firm doesn’t operate at its lowest cost
What is the Market Structure for Perfect Competition
- Low Barriers to Entry
- Perfect Information
- Homogenous Goods
- A lot of firms
What is the Market Structure of Monopolistic Competition
- Many Firms
- Low Barriers to Entry
- Goods are Differentiated
- Imperfect Information
What is the Market Structure for an Oligopoly
- High Barriers to Entry
- Few Firms
- Product Differentiation
What is Interdependence
When the action of one firms affects another firm
Define Overt Collusion
Direct contact by both firms to fix prices
Define Tacit Collusion
Firms act independently but jointly exercise their power to fix prices
What is a Cartel
An agreement with firms not to compete with each other
Where can you find Profit Maximisation
MC = MR
Where can you find Sales Maximisation
AC = AR
Where can you find Revenue Maximisation
MR = 0
