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micro year 2 > Buisness Objectives > Flashcards

Buisness Objectives Flashcards

1
Q

Shareholder objective

A

Maximise profit

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2
Q

Who influences a firms decisions

A

Consumers, owners, shareholders, directors, workers

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3
Q

Directors/managers objectively

A

Maximise sales - increased sales bonus

Maximise revenue - increases company size boosting prestige

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4
Q

Workers objectives

A

Higher wages, job security, improved working conditions

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5
Q

Consumers objectives

A

Better customer service and quality, social and environmental causes

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6
Q

Marginal Revenue (MR) and Total Revenue (TR) relationship?

A

When MR is positive, TR will increase as quantity increases.

When MR is negative, TR will decrease as quantity increases.

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7
Q

Total Revenue (TR)?

A

Total Revenue = Price x Quantity

Total revenue is total amount of money a firm receives from its sales.

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8
Q

Revenue maximization?

A

When MR=0

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9
Q

What does a total fixed curve look like

A

Straight horizontal - doesn’t change with output

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10
Q

Diminishing marginal returns (or the law of diminishing marginal returns)?

A

In the short run, as more factors are employed, the marginal returns from these factors will eventually decrease!

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11
Q

Explain why the marginal cost (MC) curve goes down and then up

A

MC decreases because initially workers will specialise, increase productivity and decreasing marginal cost.

MC will then increase because diminishing marginal returns will set in, which will decrease productivity and increase marginal cost.

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12
Q

What is the divorce of ownership and control

A

As a firm gets bigger, there is a difference between who owns the firm and who controls it eg due to selling shares

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13
Q

principal agent problem

A

agent (who control the buisness) pursue diff interests than the principal (the owners)

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14
Q

why firms seek to grow (5)

A
  • take advantage of risk-bearing economies of scale to lower the risk of failing
  • reach economies of scale
  • growth in market share leading to monopoly
  • increased profits
  • Increased prestige for managers seeing the firm become more influential and powerful.
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15
Q

Why firms stay small (5)

A
  • niche market
  • greater danger of losing control due to selling shares
  • Government blocking mergers
  • not enough money
  • Reduce diseconomies of scale
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16
Q

Ways to overcome the principal agent problem(3)

A
  • Performance Related Pay eg a year-end bonus for completeing objectives
  • employee share ownership scheme eg john lewis
  • long term employment contracts to look out for long term best interests
17
Q

how can small firms compete with large firms (3)

A
  • niche markets eg handmade products
  • avoid diseconomies of scale
  • often more flexible to changes in demand
18
Q

demerger meaning

A

business sells one or more of the businesses it currently owns resulting in the business turning into a separate company.

19
Q

4 benefits of a demerger

A
  • reduces diseconomies of scale
  • can separate and specialise
  • firm can sell one of its divisions and its assets to raise money
  • focus on core objctives
20
Q

what is the short run shut down point

A

AVC = AR

21
Q

what is the long run shut down point

A

ATC= AR

22
Q

factors affecting the profitability of pepsi (3)

A
  • substitutes
  • brand loyalty
  • competition
23
Q

how to you show an increase in variable cost on a graph

A

shift AC and MC upwards

24
Q

how do you show an increase in fixed costs on a graph

A

only AC shifts upwards

25
Q

what is the allocatively efficient point

A

MC=AR

26
Q

what is market power

A

ability to raise prices than if it was more competitive

influence on which goods are bought and sold

27
Q

how has aldi increased market share

A
  • rate of income increase lower than inflation - cheaper prices
  • more stores more revenue
  • exploit9 economies of scale - further lower prices
28
Q

what does it mean when XED is 0

A

unrelated goods

micro year 2 (9 decks)

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