3B

Question 1

Marginal revenue

Answer 1

change in TR/change in quantity

Question 2

What is a price taker

Answer 2

A firm in a competitive market that has to accept the market price.

Question 3

Characteristics of perfect competition

Answer 3

Very many consumers-infinite
very many, similarly sized firms-infinite.
Identical product homogenous.
perfect info about price.

Question 4

price maker

Answer 4

A firm that has control over the market price

Question 5

Relationship between AR and MR

Answer 5

MR half

Question 6

Fixed cost

Answer 6

Costs that don’t change with output

Question 7

Variable costs

Answer 7

Costs that change with output

Question 8

Average total cost

Answer 8

TC/quantity

Question 9

Marginal cost

Answer 9

change in TC / change in Q

Question 10

Law of diminishing returns

Answer 10

If a firm increases its inputs of one FoP while other factors are fixed, it will eventually lead to less extra product from the variable factor.

Question 11

Short-Run

Answer 11

The period when a firm can only vary the input of one of its factors of production eg labour, but faces a fixed input of the others.

Question 12

Long-Run

Answer 12

The period when a firm can vary the inputs of all its factors of production

Question 13

Economies of scale

Answer 13

Where an increase in the size of firms level of output leads to lower long-run average costs.

Question 14

Purchasing EoS

Answer 14

these give lower LRAC due to higher bulk buying of inputs into a business eg fuel and vehicles, key customer can negotiate higher discount so Lower LRAC

Question 15

Managerial and marketing Eos

Answer 15

As a firm expands the same number of managers are likely to be able to still manage the firms for a range of output levels- so LRAC of those managers falls.

Question 16

Risk-bearing Eos

Answer 16

Often gained by larger firms that can bear risks more, some investments are very expensive or risky, only a large firm will be W and A to undertake the investment e.g into R and D which may lead to lower LRAC

Question 17

Financial EoS

Answer 17

These are the cost savings that large firms may receive when borrowing money, a larger firm may get a lower ir on borrowed funds as risk of lending is lower.

Question 18

Technical and transport EoS

Answer 18

These often come from i increased capacity use or a now viable technological development that results in lower LRAC.

e.g containerisation

Question 19

Minimum efficient scale

Answer 19

The level of output where LRAC stops following as output increases

Question 20

Diseconomies of scale

Answer 20

When an increase in the level of output leads to higher LRAC

Question 21

Internal EoS

Answer 21

Economies of scale that arise from expansion of a single firm

Question 22

External EoS

Answer 22

Economies of scale that arise from expansion of the whole industry.

Question 23

Productive efficiency

Answer 23

Where production takes place using the least amount of scarce resources, producing at minimum AC

Question 24

Allocative efficiency

Answer 24

When society is producing an appropriate bundle of goods relative to consumers preferences

Question 25

Dynamic efficiency

Answer 25

An increase in AE or PE in the long-run due to an increase in innovation or technical progress.

Question 26

X-inefficiency

Answer 26

When a firm lacks the incentive to keep costs down so is not working at minimum LRAC

Question 27

Reasons for X-inefficiency

Answer 27

-organisational stock
-a lack of motivation of management
-Actual costs are higher than attainable/potential costs.

Question 28

Normal profit

Answer 28

Profit that covers the opp cost of capital and is just sufficient to keep the firm in the market

Question 29

SNP

Answer 29

Profit that is greater than normal profit

Question 30

Marginal revenue

Answer 30

The additional revenue gained by a firm from selling an additional unit of output

Question 31

Satisficing

Answer 31

Where a manager aims to produce satisficing results for the firm, eg i the forms of profit, rather than trying to maximise them

Question 32

advantages of satisficing

Answer 32

-some profits to keep shareholders happy
-Profit without taking unnecessary risks.
-Possible benefits to society

Question 33

disadvantages of satisficing

Answer 33

-less profit for shareholders