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Economics > chapter 20-23 Firms > Flashcards

chapter 20-23 Firms Flashcards

1
Q

Define industry

A

group of firms producing the same product

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2
Q

What are the 4 stages of production (4)

A

primary sector

secondary sector

tertiary sector

quaternary sector

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3
Q

Define primary sector

A

The extraction and collection of raw materials. THe first stage of production

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4
Q

Examples of primary sector (4)

A

agriculture

mining

forestry

fishing

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5
Q

Define secondary sector

A

THe processing of raw materials into finished and semi-finished goods. Manufacturing and construction.

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6
Q

Examples of secondary sector (3)

A

clothing

steel

electronics

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7
Q

Define tertiary sector

A

Producing services

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8
Q

Examples of tertiary sector (4)

A

Banking

insurance

tourism

hospitality

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9
Q

Define quaternary sector

A

covers service industries that are knowledge based

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10
Q

Examples of quaternary sector (2)

A

software

social media

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11
Q

Who owns the public sector firms?

A

Government

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12
Q

Who owns the private sector firms?

A

individuals (owner, shareholders)

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13
Q

What are the three main measures of the size of a firm? (3)

A

number of workers employed

value of the output it produces

value of financial capital it employs

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14
Q

Factors that affect the size of a firm (5)

A

age of the firms

availability of financial capital (investors, loans)

type of business oganisation (one owner or multi national corporation)

internal economics and diseconomies of scale

size of the market

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15
Q

Why may firms choose/forced to stay small? (7)

A

small size of market

preference of consumers

owner preference

flexibility

Unique services + goods

government support

easier to manage and control

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16
Q

Why will the small size of the market force a firm to be small? (2)

A

If demand for product is small, a firm producing it cannot be large

Demand for very expensive items may be small as it may be for individually designed items

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17
Q

Why might preference of consumers make the firm stay small?

A

For some personal services, firms can cater to teir individual requirements and can provide a friendlier and more personal service

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18
Q

Disadvantages of small firms (5)

A

hard to raise finance

firm dependent on owner

vulnerable to recession

small number of employees

less ability to take advantage of EoS

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19
Q

What are the two types of growth of firms

A

Internal growth

external growth

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20
Q

Define internal growth

A

An increase in the size of a firm resulting from it enlarging existing plants or opening new ones

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21
Q

Define external growth

A

an increase in the size of a firm resulting from it mergings or taking over another firm

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22
Q

What are the 3 types of mergers

A

vertical integration

horizontal integration

conglomerate

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23
Q

Define vertical integration

A

Meger with a firm at a different stage in the supply chain

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24
Q

What are the two types of vertical integration + definition (2)

A

Vertical integration forwards (a merger with a firm at an earlier stage of the supply chain)

vertical integration backwards (a merger with a firm at a later stage of the supply chain)

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25
Q

Define horizontal integration

A

merger with a company producing the same product at the same stage of production

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26
Q

Define conglomerate

A

merger between two firms which produce unregelated products

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27
Q

Advantages of internal growth (2)

A

less risky, growth is incremental and owner retains a high degree of control

Growling slow allows owners to unedrstand strength and weakness of firm

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28
Q

Disadvantages of internal growth

A

limited resource

slower growth - more opportunity for competitor to exploit firm’s weakness

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29
Q

Advantages of external growth (3)

A

Gain skills of the staff that have been working for the acquired firm

firm gains knowledge that the other firms acquired

Growth is rapid

30
Q

What is the main disadvantage of external growth + elaborate (3)

A

Higher level of risk
- more financial capital involved
- impossible to know everything about the new firm acquired
- greater management required

31
Q

Advantage of vertical integration (3)

A

production cost may decrease (supply chain move streamlined)

gains ability to control quality at each stage of the process

Gaurantees access of raw materials

32
Q

Disadvantages of vertical integration(2)

A

Reduced ability to switch suppliers

usually does’t generate economies of scale as the production process in each stage are different

33
Q

Advantage of horizontol integration(2)

A

Gain more market share
-gain monopoly power
- charge higher prices

Increase in potential for EoS

34
Q

Disadvantages of horizontal integration(2)

A

Possible slow communication

Hard to integrate differing business processes, may be a “culture clash”

35
Q

Advantages of conglomerate(2)

A

Firms gain synergies, the different firms can benefit from each other

spread risk, cross subsidise (using profits from another part of business during hard times)

36
Q

Disadvantages of conglomerate(1)

A

owners may lack knowledge/experience of new industry/sector

37
Q

Define economies of scale

A

cost advantages gained by firms as a result of increase in the scale production, leading to lower long-run average costs

38
Q

Define diseconomies of scale

A

cost disadvantages suffered by firms as a result of increase in the scale production, leading to a higher long-run average cost

39
Q

Define Internal economies/diseconomies of scale

A

When long-run average costs are lowered/increased by the FIRM increasing its scale of prodction

40
Q

Define external economies/diseconomies of scale

A

When long-run average costs are lowered/increase by growth within the wider industry

41
Q

Name and explain the different types of internal economies of scale (6)

A

Purchasing economy of scale - often reffered to as bulk-buying discounts. As a firm increases its output, its suppliers will often provide volume based discounts for the raw materials purchased. The larger the quantity, the higher the discount and the lower the ATC

Managerial economy of scale - As the firm grows it can employ specialised managers who have the skills to use resourcesmore efficiently and this lowers ATC

Financial

42
Q

Name and explain the different types of internal economies of scale (6)

A

Purchasing economy of scale - often reffered to as bulk-buying discounts. As a firm increases its output, its suppliers will often provide volume based discounts for the raw materials purchased. The larger the quantity, the higher the discount and the lower the ATC

Managerial economy of scale - As the firm grows it can employ specialised managers who have the skills to use resourcesmore efficiently and this lowers ATC

Financial economy of scale - commercial banks charge lower interest rates on loans to larger firms, who they consider to be less risky

Marketing economy of scale - Marketing costs can be high. As output increases, the marketing costs are spread over more units of output

Technical economy of scale - As a firm increase sits scale it can often install new machinery that lowers the cost of production. the firm may also use existing machinery more efficiently

Risk-bearing economy of scale - Large firms can produce a wide range of products and supply them in many geographical locations. This spreads the risk of failure for each section of the firm and in doing so lowers the ATC

43
Q

Name and explain the Type/causes of internal diseconomies of scale

A

Lack of coordination
- Difficult to coordinate the different supply chains or legal requiremetns in each country in which the firm operates
- Firms may be spread over large geographical area that is difficult to coordinate with team members in differen timezones

Lack of control
- As firms merge, the connetions between different parts of the business may become increasinly loose and difficult to maintain
- The larger the organisation, the easier it can be for workers to hide and productivity to decrease

Miscommunication
- Communications may also slow down between departments and it may take a long time for emssages to be passed back and forward
- Leads to wasteful duplication of tasks

44
Q

How does diagram of economies and diseconomies of scale look like

A

YOU SHOULD U SILLY GOOSE!!

45
Q

How does diagram of economies and diseconomies of scale look like for CAPITAL INTENSIVE industry

A

check notebook silly

46
Q

How does diagram of economies and diseconomies of scale look like for LABOUR INTENSIVE industry

A

check ntoebook silly goose

47
Q

Name and explain the types of external economies of scale (5)

A

A skilled labour force - firms can recruit workers who have been training by other firms in the industry. More universities may start to offcer coureses developing the necessary skills

specialist suppliers of raw materials - suppliers will set up organisations geographically close to the expanding industry/ THey will adjust their services to suit the needs of the industry

Specialist services - universities may run courses for workers in large industries and banks, and tranpsport firms may provide services speciallly designed to meet the particular needs of firms in the industry

Specialist markets - some large industries have specialist selling places and arragnements such as corn exhcanges and insurance markets “access to wide consumer base”

Improved infrastructure - The growth of an industry may encourage a government and private sector firms to provide better road links and electricity supplies, biild new airports and develop dock facilities etc

48
Q

Name and explain the types of external diseconomies of scale

A

Larger firms may attract goevrnment regulation

congestion/traffic of transport used by industry

Land + property prices increase

Infasture become over-burdened

more demand for skilled laour/raw materials and capital (wages up leading to up cost)

49
Q

What causes a shift in the economies and diseconomies of scale diagram

A

changes in external Internal and diseconomies of scale

50
Q

Define production

A

the process of turning factor inputsinto output

51
Q

Define productivity

A

The output per factor of production per hour- a measure of efficiency of the factor of production

52
Q

Equation for labour productivity

A

labour productivity = total output/ number of workers

53
Q

Equation for capital productivity

A

Capital productivity = total output/ number of machines

54
Q

Name and explain the factors firms consider when making decisions about production

A

Time frame

combination/balance

productivity

expense and relative cost of different factors

risk

55
Q

Define labour intensive

A

The production process requires a high proportion of labour

56
Q

Define capital intensive

A

production process requires a high proportion of capital

57
Q

Advantages of labour intensive production (4)

A

workers can generate new ideas or provide feedback to management on how improvements can be made

workers can connect better and provie a personal level of service to consuemrs in such way that it helps build customer loyalty

workers can respond to costomer deedback and modify the product to suit them

the number of workers hired cna fluctuate with demand for the product/move workers between different tasks

58
Q

Advantages of capital intensive production (4)

A

Firm can gain technical economies of sacle and reduce the average total costs

Human error is avoided and quality remains high and mre consistent

Machines do not need regular breaks

machnes have no rights

59
Q

Define fixed costs

A

costs that do not vary with output

60
Q

Define average fixed costs

A

fixed costs per unit of output

61
Q

Define variable costs

A

costs that change with output.

62
Q

Define average variable costs

A

variable costs per unit of output

63
Q

Define total cost

A

total amount spent by a firm on the factors of production used to produce an output

64
Q

Define average total cost

A

total costs per unit of output

65
Q

Equation for average revenue

A

total revenue/quantity sold

66
Q

How does graph look in perfectly competitve market

A

book

67
Q

What are the different objectives of firms (5)

A

profit maximsation

survival

growth

social welfare

profit satisficing

68
Q

What are the different objectives of firms (5)

A

profit maximsation

survival

growth

social welfare

profit satisficing

69
Q

What are the different objectives of firms (5)

A

profit maximsation

survival

growth

social welfare

profit satisficing

70
Q

2 ways of increasing profit (2)

A

reduce costs of production

raise revenue

Economics (19 decks)

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