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A Level Economics > 5: Business Behaviour > Flashcards

5: Business Behaviour Flashcards

1
Q

Demergers

A

a business strategy in which a single business is broken into two or more components, either to operate on their own, to be sold or to be disolved i.e. 1997 Pepsi announced a demerger of its deals with Pizza Hut, KFC and Taco to focus on competition with Coca Cola

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2
Q

Why do you demerge?

A

Lack of synergies
Value of company/share price
Focussed companies

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3
Q

Impact of a demerge on the business

A

Efficient
Innovation
Higher survival chance
Less economies of scale

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4
Q

Impact of a demerge on workers

A

Lead to promotions
May result in job loss due to aim of being more efficient

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5
Q

Impact of a demerge on consumers

A

Efficiency + innovation = better products + cheaper prices
Less efficient due to economies of scale = raised prices/reduced quality of goods due to motivation for profits

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6
Q

Total revenue =

A

Price x Quantity

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7
Q

Average revenue =

A

Total revenue / Quantity

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8
Q

Marginal revenue (defintion and formula) =

A

Additional revenue gained by a firm from selling an additional unit. Change in TR / Change in output

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9
Q

Profit =

A

Total revenue - total costs

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10
Q

Agent of a firm

A

A person, company or organisation that has na influence on an economy by producing, buying or selling

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11
Q

Divorce of ownership and control

A

When an owner of a business does not control and does not get involved in the day to day running of the business

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12
Q

Not-for-profit organisation

A

Establishments that are used for the welfare of the community and people

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13
Q

Public sector organisation

A

Provide goods/services for the community and owned by the government

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14
Q

Private sector organisation

A

Owned by individuals and are driven by profit

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15
Q

Seperation of ownership and control

A

When shareholders possess little or no direct control over management decisions

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16
Q

Co-operative type of firm

A

Business/organisation that’s owned and controlled by its members to meet shared needs i.e. co-op supermarket or co-op bank

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17
Q

Partnership type of firm

A

Two or more people oversea business operations and share profits and liabilities i.e. RedBull + GoPro

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18
Q

Privately owned firm (LTD)

A

Owned by a closed circle of shareholders who can’t sell shares to external investors i.e. local retailers

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19
Q

Public Limited Company (PLC)

A

Can sell shares on the stock market i.e. Amazon

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20
Q

Social Enterprise (not for profit)

A

Puts interests of the people above prodit i.e. cooperative

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21
Q

Start up business

A

A company in the first stages of operation i.e. AirBnB or dropshipping

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22
Q

State-owned business

A

An entity formed by the government for the purpose of engaging in commercial activities i.e. British Buiness Bank

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23
Q

Why do firms seek to grow?

A

Increase market share
Lower costs through economies of scale
Generate more revenue
More sales
Maximise profits

24
Q

Why do some firms remain small?

A

Owner’s decision
Nature of the product
Avoid diseconomies of scale
Limited production capacity
Small target market

25
Q

Principal agent problem

A

The conflict in interests and priorities that arises when one person or entity takes actions on behalf of another person or entity

26
Q

Ways a corporation can overcome the principal agent problem

A

Full transparency
Align the interests of the both principal and the agent
Remove any conflicts of interest

27
Q

Backward/forward vertical integration

A

A company expands to fufil a role behind them/infront of them in the supply chain i.e. a brewer buys a hop farm or a vehicle manufacturer buys a car retailership

28
Q

Pros of vertical integration

A

Control of supply chain -> reduces costs + improves quality
Improved access to raw materials

29
Q

Cons of vertical integration

A

Loss of focus
High costs
Less flexibility

30
Q

Organic growth

A

Increasing capital and enhancing sales internally

31
Q

Pros of organic growth

A

Lower risk
More sustainable

32
Q

Cons of organic growth

A

Can be slower
Growth may limited

33
Q

Horizontal integration

A

Acquisition of another company in the same industry i.e. Facebook with Instagram

34
Q

Pros of horizontal integration

A

Expands market share
Grow in revenue
Improved efficiencies

35
Q

Cons of horizontal integration

A

Less flexibility
Regulatory scrutiny

36
Q

Conglomerate integration

A

A merger between two firms in different industries i.e. Amazon and Whole Foods

37
Q

Conglomerate integration pros

A

Diversification
Expanded customer base

38
Q

Conglomerate integration cons

A

Clashing cultures
Loss of efficiency
Shift away from core business

39
Q

External growth

A

A merger/takeover happens to a business by a third party that results in increased investment

40
Q

How can smaller firms survive and remain profitable in markets with bigger scaled businesses?

A

More flexible
Fill niches
Social profiles with customers

41
Q

Factors that act as a constraint on business growth

A

Size of the market - demand limited in small/niche markets
Access to finance - hard to expand with difficulty in getting loans and raising capital
Owner objectives - some owners want to remain small
Industry regulation - may introduce costs

42
Q

Activist shareholders

A

Uses an equity stake in a corporation to put pressure on its management

43
Q

Performance-related pay

A

Linkign salaries to individual based performance

44
Q

Stakeholder conflict

A

Interests/goals of stakeholders clash

45
Q

Rationalisation

A

Changing a pre-exisitning workflow into one that’s more goal orientated and based on a specific set of rules

46
Q

Marginal productivity

A

The amount produced by each additional worker. Change in output / change in workers

47
Q

What happens if marginal productivity falls?

A

Marginal costs will rise

48
Q

Economies of Scale

A

Reducing average total costs as output increases

49
Q

Economies of scale Fun Mums Try Making Pies??

A

Financial - large firms negotiate cheaper finance deals
Managerial - use of specialists
Technical - changes to ‘productive process’
Marketing - expensive marketing spread over lots of sales
Purchasing - able to buy in bulk

50
Q

Diseconomies of scale

A

The average cost of production increases as output increases

51
Q

External economies of scale

A

Cost savings outside of a firm but within an industry i.e. better transportation network

52
Q

Minimum efficiency scale (MES)

A

Minimum level of output needed for a business to fully exploit economies of scale

53
Q

At what point is profit maximisation on a monoply diagram?

A

MR = MC

54
Q

At what point is revenue maximisation on a monoply diagram?

A

MR = 0

55
Q

At what point is sales maximisation on a monoply diagram?

A

ATC = AR

56
Q

At what point is satisficiny on a monoply diagram?

A

Triangal between profit max and sales max

57
Q
A

A Level Economics (15 decks)

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