Booklet 4 Flashcards
What is profit over and above normal profit called?
Abnormal/supernormal/economic profit
What is the average cost of producing one unit of output called?
Average (unit) cost
What is the amount of output produced per unit of a variable factor of production (i.e. productivity) called?
Average return
What is the average revenue a firm generates per unit sold called?
Average revenue
What is the acquisition of a business that is at an earlier stage of production (i.e. closer to the source of the raw material) in the same industry?
A backward vertical merger
What is a factor that makes it more difficult and/or expensive for new firm to enter a new market?
A barrier to entry
What is a factor that makes it more difficult and/or expensive to leave a market?
A barrier to exit
What is an economic system where the means of production are controlled by the private sector and operated in the pursuit of profit?
Capitalism
What is a merger between two firms with no common business interest?
A conglomerate merger
What is an increase in the quantity of all factors of production employed leads to a proportionate increase in output (e.g. 10% more factor inputs employed leads to a 10% increase in output) called?
Constant returns to scale
What is a market free from barriers to entry and exit?
A contestable market
What is the process where barriers to entry are removed from markets (usually by technological advances), allowing new firms to replace older ones and creating new markets out of nothing?
Creative destruction
What is a situation where an increase in the quantity of all factors of production employed leads to a less than proportionate increase in output (e.g. 10% more factor inputs employed leads to a 5% increase in output)?
Decreasing returns to scale
What is a situation where an increase in the quantity of one variable leads to a smaller increase in output that the addition of the previous unit called?
Diminishing marginal returns
What is an increase in long-run average costs arising from an increase in a firm’s scale of operations called?
Diseconomies of scale (internal)
What is an increase in long-run average costs arising from an increase in the size of an industry called?
Diseconomies of scale (external)
What is a scenario where the people who own a firm are not the same people that run it called?
The divorce between ownership and control
What is a reduction in long-run average costs arising from an increase in a firm’s scale of operations called?
Economies of scale (internal)
What is a reduction in long-run average costs arising from the growth of an industry as a whole called?
Economies of scale (external)
What is the growth of a firm through mergers and acquisitions called?
External growth
What are costs that do not vary with output?
Fixed costs
What is the acquisition of a business that is at a later stage of production (i.e. closer to the consumer) in the same industry called?
A forward vertical merger
What is a merger between two firms at the same stage of production in the same industry called?
A horizontal merger
What is a situation when an increase in the quantity of one variable input leads to a larger increase in output than the addition of the previous unit called?
Increasing marginal returns
What is an increase in the quantity of all factors of production employed leads to a more than proportionate increase in output (e.g. 10% more factor inputs employed leads to a 20% increase in output) called?
Increasing returns to scale
What is the exploitation of invention to create a product that can be marketed?
(Product) Innovation
What is the growth of a firm without mergers or takeovers, e.g. through successful advertising or building additional factories called?
Internal (or organic) growth
What is the discovery of new technology through research and development called?
Invention
What is the period of time in which all factors of production become variable in quantity?
The Long run
What is the change in total cost from the production of an additional unit of output (change in total cost/change in quantity sold)?
Marginal cost
What is the change in total output from an additional unit of a variable factor of production?
Marginal return
What is the change in total revenue from the sale of an additional unit of output (change in total revenue/change in quantity sold) called?
Marginal revenue
What is the smallest scale of production at which average cost is minimised (the lowest point of the LRAC curve)?
The minimum efficient scale of production
What is a level of profit which is just enough to cover the opportunity cost of the factors of production being used in their current employment called?
Normal profit
What is a scenario where the agents (e.g. managers) appointed by the principal (e.g. shareholders) do not act as the principal would wish because they face different incentives called?
The principal-agent problem
What is the exploitation of invention to create new ways of producing goods or services?
Process innovation
What, in purely accounting terms, is an excess of revenue over costs?
Profit
What is the period of time in which at least one factor of production is fixed in quantity?
The Short run
What is the sum of total fixed costs and total variable costs?
Total cost
What is the total output produced from a given quantity of a variable factor of production?
Total return
What are the total receipts of a firm from the sale of its product (selling price x quantity sold) called?
Total revenue
What are costs that vary directly with output?
Variable costs
What is a firm that is able to continue operating without becoming insolvent, but constrained by large debts that it may only be able to pay the interest on called?
A Zombie company/firm
