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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
Define horizontal integration
merger with a company producing the same product at the same stage of production
26
Define conglomerate
merger between two firms which produce unregelated products
27
Advantages of internal growth (2)
less risky, growth is incremental and owner retains a high degree of control Growling slow allows owners to unedrstand strength and weakness of firm
28
Disadvantages of internal growth
limited resource slower growth - more opportunity for competitor to exploit firm's weakness
29
Advantages of external growth (3)
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
What is the main disadvantage of external growth + elaborate (3)
Higher level of risk - more financial capital involved - impossible to know everything about the new firm acquired - greater management required
31
Advantage of vertical integration (3)
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
Disadvantages of vertical integration(2)
Reduced ability to switch suppliers usually does't generate economies of scale as the production process in each stage are different
33
Advantage of horizontol integration(2)
Gain more market share -gain monopoly power - charge higher prices Increase in potential for EoS
34
Disadvantages of horizontal integration(2)
Possible slow communication Hard to integrate differing business processes, may be a "culture clash"
35
Advantages of conglomerate(2)
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
Disadvantages of conglomerate(1)
owners may lack knowledge/experience of new industry/sector
37
Define economies of scale
cost advantages gained by firms as a result of increase in the scale production, leading to lower long-run average costs
38
Define diseconomies of scale
cost disadvantages suffered by firms as a result of increase in the scale production, leading to a higher long-run average cost
39
Define Internal economies/diseconomies of scale
When long-run average costs are lowered/increased by the FIRM increasing its scale of prodction
40
Define external economies/diseconomies of scale
When long-run average costs are lowered/increase by growth within the wider industry
41
Name and explain the different types of internal economies of scale (6)
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
Name and explain the different types of internal economies of scale (6)
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
Name and explain the Type/causes of internal diseconomies of scale
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
How does diagram of economies and diseconomies of scale look like
YOU SHOULD U SILLY GOOSE!!
45
How does diagram of economies and diseconomies of scale look like for CAPITAL INTENSIVE industry
check notebook silly
46
How does diagram of economies and diseconomies of scale look like for LABOUR INTENSIVE industry
check ntoebook silly goose
47
Name and explain the types of external economies of scale (5)
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
Name and explain the types of external diseconomies of scale
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
What causes a shift in the economies and diseconomies of scale diagram
changes in external Internal and diseconomies of scale
50
Define production
the process of turning factor inputsinto output
51
Define productivity
The output per factor of production per hour- a measure of efficiency of the factor of production
52
Equation for labour productivity
labour productivity = total output/ number of workers
53
Equation for capital productivity
Capital productivity = total output/ number of machines
54
Name and explain the factors firms consider when making decisions about production
Time frame combination/balance productivity expense and relative cost of different factors risk
55
Define labour intensive
The production process requires a high proportion of labour
56
Define capital intensive
production process requires a high proportion of capital
57
Advantages of labour intensive production (4)
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
Advantages of capital intensive production (4)
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
Define fixed costs
costs that do not vary with output
60
Define average fixed costs
fixed costs per unit of output
61
Define variable costs
costs that change with output.
62
Define average variable costs
variable costs per unit of output
63
Define total cost
total amount spent by a firm on the factors of production used to produce an output
64
Define average total cost
total costs per unit of output
65
Equation for average revenue
total revenue/quantity sold
66
How does graph look in perfectly competitve market
book
67
What are the different objectives of firms (5)
profit maximsation survival growth social welfare profit satisficing
68
What are the different objectives of firms (5)
profit maximsation survival growth social welfare profit satisficing
69
What are the different objectives of firms (5)
profit maximsation survival growth social welfare profit satisficing
70
2 ways of increasing profit (2)
reduce costs of production raise revenue

Economics (19 decks)

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