3.1 Business Behaviour

Question 1

Why do some firms stay small

Answer 1

-Size of market may be small
-Lack of economises of scale
-Limited access to finance

Question 2

Why do firms want to grow

Answer 2

-Economies of scale
-To increase market share
-To reduce risk

Question 3

What is a private sector firm

Answer 3

Where firms that are owned by private individuals

Question 4

What is a public sector firm

Answer 4

A firm which is owned by the government

Question 5

What is an example of a public sector firm

Answer 5

-NHS
-Network Rail

Question 6

What is an example of a private sector firm

Answer 6

-Apple
-Amazon

Question 7

What is a non profit organisation

Answer 7

Firms which primary motives is not for profit

Question 8

What is profit organisation

Answer 8

Firms that aim to maximise profits

Question 9

What is an example of an non profit organisation

Answer 9

-BBC
-WWF

Question 10

What is organic growth

Answer 10

Internal growth where the business does not grow through an acquisition

Question 11

What is an advantage of organic growth

Answer 11

-Less risk
-Maintains business culture
-No need for restructuring

Question 12

What is a disadvantage of organic growth

Answer 12

-Growth will be slower
-May decrease competitiveness in business
-Firms may become too specialised

Question 13

What is exeternal growth

Answer 13

A firm growing by being bought out by another firm through a merger of acquisition

Question 14

What is horizontal integration

Answer 14

Where a firm merges with a firm at the same production stage/process

Question 15

What are the advantages of horizontal integration

Answer 15

-To increase market share
-To gain economies of scale
-To eliminate a competitor

Question 16

What are the disadvantages of horizontal integration

Answer 16

-Diseconomies of scale
-Increased fixed costs
-Some workers many lose their jobs due to duplication of jobs

Question 17

What is vertical integration

Answer 17

Where a firm merges with another firm which is at a different stage in the production process

Question 18

What is backward integration

Answer 18

Where a firm mergers with a supplier

Question 19

What is forward integration

Answer 19

Where a firm mergers with a firm that is ahead of them in the production process

Question 20

What is an advantage of Backward integration

Answer 20

-More control over raw material and make them more guaranteed
-Can prevent competitors buying from the same suppliers

Question 21

What is a disadvantage of Forward integration

Answer 21

-Risk of making a loss

Question 22

What is a disadvantage of Backward integration

Answer 22

-Diseconomies of scale
-May not have the correct knowledge

Question 23

What is an advantage of Forward integration

Answer 23

-Can help lead to an increase in profits

Question 24

What is conglomerate integration

Answer 24

When a firm buys another firm that is completely unrelated to each other

Question 25

What is an advantage of conglomerate integration

Answer 25

-Spreads the risk -Brand gains more recognition

Question 26

What is a disadvantage of conglomerate integration

Answer 26

-Culture clash -Lack of knowledge inn new area

Question 27

What is a demerger

Answer 27

The separation of large company into two or more smaller ones

Question 28

List the reasons for a demerger

Answer 28

-To avoid diseconomies of scale -To raise finance -To increase profit -To meet demands of regulators

Question 29

What is Total Revenue and Equation

Answer 29

- The amount of money the firm earns - Price x Quantity

Question 30

What is Average Revenue and the Equation

Answer 30

- The amount the firm receives per unit sold - Total Revenue / Quantity

Question 31

What is Marginal Revenue and the Equation

Answer 31

- The change in total revenue from selling one more unit of output - Change in revenue / Change in quantity

Question 32

How do you work out Total Cost

Answer 32

Total Variable Cost + Total Fixed Cost

Question 33

How do you work out Total Fixed Cost

Answer 33

Total Cost - Total Variable Cost

Question 34

How do you work out Average Total Cost

Answer 34

Total Cost / Quantity

Question 35

What is Allocative Efficiency

Answer 35

Where resources are allocated to maximise utility

Question 36

Where can you find Allocative Efficiency

Answer 36

P=MC

Question 37

What is Productive Efficiency

Answer 37

Where a firm produces a good or service at its lowest possible cost

Question 38

What is Dynamic Efficiency

Answer 38

The ability to innovate

Question 39

What is X-Inefficiency

Answer 39

Where a firm doesn’t operate at its lowest cost

Question 40

What is the Market Structure for Perfect Competition

Answer 40

- Low Barriers to Entry - Perfect Information - Homogenous Goods - A lot of firms

Question 41

What is the Market Structure of Monopolistic Competition

Answer 41

- Many Firms - Low Barriers to Entry - Goods are Differentiated - Imperfect Information

Question 42

What is the Market Structure for an Oligopoly

Answer 42

- High Barriers to Entry - Few Firms - Product Differentiation

Question 43

What is Interdependence

Answer 43

When the action of one firms affects another firm

Question 44

Define Overt Collusion

Answer 44

Direct contact by both firms to fix prices

Question 45

Define Tacit Collusion

Answer 45

Firms act independently but jointly exercise their power to fix prices

Question 46

What is a Cartel

Answer 46

An agreement with firms not to compete with each other

Question 47

Where can you find Profit Maximisation

Answer 47

MC = MR

Question 48

Where can you find Sales Maximisation

Answer 48

AC = AR

Question 49

Where can you find Revenue Maximisation

Answer 49

MR = 0