Chapter 8

Question 1

What are Inputs / Factors of production

Answer 1

• Labour
• Land
• Capital

Question 2

What is the short run usually constrained by?

Answer 2

One factor of production

Question 3

As price for a item decreases what will happen to demand?

Answer 3

Quantity demand decreases

Question 4

As price for an item increases what will happen to demand?

Answer 4

Quantity demand increases

Question 5

What does the quantity axis show and what does this mean?

Answer 5

The quantity axis shows effective demand = what we’re willing and able to demand

Question 6

List factors which can effect demand

Answer 6

• Complementary goods – e.g. if buying butter if bread price decreases then demand for butter will increase.
• Substitute goods – same as competitors e.g. if price for butter substitutes increases then butter demand would increase
• Consumer income – normal goods rise in demand as well as luxury goods. If income decreases then demand for inferior goods will increase (e.g. own brand goods)
• Tastes
• Advertising

Question 7

What is supernormal profit?

Answer 7

also called excess profit, supernormal profit or pure profit, is “profit of a firm over and above what provides its owners with a normal return to capital.

Profit in excess of
• Measured costs
• Opportunity costs – costs associated with the next best use of the unborrowed capital tied up in the business and the use of the owner’s time

Question 8

What is marginal cost

Answer 8

The change in the total cost that arises when the quantity produced is incremented by one unit; that is, it is the cost of producing one more unit of a good.

Question 9

What is marginal revenue

Answer 9

Marginal revenue (MR) is the increase in revenue that results from the sale of one additional unit of output.

Question 10

What is profit maximisation?

Answer 10

profit maximization is the short run or long run process by which a firm may determine the price, input and output levels that lead to the highest profit.

Question 11

What are fixed costs?

Answer 11

Are costs which do not vary with the level of output e.g. rent / advertising

Question 12

What is a variable cost

Answer 12

a variable cost is dependent on the production output level of goods and services.

Question 13

When do variable costs rise and fall?

Answer 13

cost rises as the production output level rises and decreases as the production output level decreases.

Question 14

What are economies of scale?

Answer 14

Economies of scale are cost advantages reaped by companies when production becomes efficient.

Question 15

What is perfect competition?

Answer 15

A market structure in which neither buyers nor sellers believe that they can influence the market price by any actions of their own

Question 16

what would the demand line in a perfect competition market look like

Answer 16

horizontal - can sell as much as it wants at the prevailing market price

Question 17

In perfect competition what do both buyers and sellers regard themselves as?

Answer 17

pricetakers

Question 18

what tends to be given as a good e.g. of perfect competition?

Answer 18

Agriculture

No individual farmer can influence market price by selling more or less of any commodity since their impact on overall market supply is negligible.

In addition no individual buyer is in a strong enough position to influence price by offering to buy more or less of a product.

Is a homogeneous product

Question 19

list features of perfectly competitive markets

Answer 19

o Homogenous product
o Large number of independent firms, each small relative to industry size
o No barriers to entry or exit of industry. This guarantees that if a group of firms decide to restrict supply to force prices higher then the extra profit will attract new firms and force prices down again.
o Perfect information - appropriate info for consumers to appreciate homogeneity

Question 20

What is supply elasticity?

Answer 20

the % change in quantity supplied in response to a given change in % price.

Question 21

what is opportunity cost?

Answer 21

Opportunity cost is the forgone benefit that would have been derived by an option not chosen. ·

Question 22

Describe a monopolistic market structure

Answer 22

• relatively large number of fairly small firms
• entry and exist to the industry is relatively easy
• each firm’s products are differentiated in some way
• no single firm has significant pricing power by virtue of its size alone
• Some degree of pricing power does exist to to product differentiation

Question 23

Describe an oligopolistic market structure

Answer 23

• relatively few firms
• significant barriers to enter the industry
• products may be homogeneous (often raw materials or intermediate goods) or differentiated

Question 24

why is an oligopoly inefficient?

Answer 24

from a viewpoint of economic performance these are inefficient because they produce at less than minimum cost. They are also often wasteful in their marketing of similar products

Question 25

what is a duopoly

Answer 25

cournot equilibrium - with two dominant firms. The industry’s total output lies between a competative industry and a monopoly

Question 26

what is the essential feature of a oligopoly

Answer 26

firms are large enough to have some control over price

Question 27

explain how a bull stock market leads real recovery and the sequence for this

Answer 27

BULL

• transportation and energy lead the market upwards
• followed by credit cyclicals and technology
• followed by consumer growth and cyclicals
• then capital goods and financials get relatively strong as the market peaks

Question 28

when does a bear market take hold?

Answer 28

just as a market tops

Question 29

what performs well in a bear market?

Answer 29

basic industries and later consumer staples and utilities

Question 30

what happens in a bear market

Answer 30

market bottoms out again and shortly after the real activity hits a low and the cycle repeats

Question 31

what are the 5 phases of the product life cycle

Answer 31

1) Introduction
2) Growth phase
3) Maturity phase
4) decline phase
5) Obsolescence

Question 32

Describe the introduction phase

Answer 32

sees product sales growing slowly and heavy promotion cost leading to low or negative profits

Question 33

Describe the growth phase

Answer 33

involves a rapid increase in sales as the product becomes better known; profits rise but this could attract competitors and product innovation may be needed

Question 34

describe the maturity phase

Answer 34

sees a loss of market share and profitability, and a decision as to whether to continue marketing expenditure to sustain sales. During this phase a product relaunch may be considered

Question 35

describe the obsolescence stage

Answer 35

the product has reached the end of its natural life and profits disappear

Question 36

what are the drawbacks of the product life cycle

Answer 36

• assumes that consumers do not revert to earlier preferences e.g. fashion or music revivals
• assumes that nobody does anything to revive a product whereas most marketers would look at a declining product and reassess its possibilities
• most firms have to balance the demands of many differing products not just a single one
• not necessarily of great practical use for prediction purposes - the maturity stage can very and it may not be straightforward to tell, for example whether a fall in sales is temporary due to a recession or the start of a real decline

Question 37

what have more sophisticated versions of the product life cycle incorporated?

Answer 37

the maturity phase including stages of maintenance and proliferation.

In the maintenance stage the firm uses tactics to keep the product in the public eye and sustain sales.

However, in the proliferation stage the firm introduces variations on the original product to extend the life cycle.

However, eventually the product will be suspended and enter decline

Question 38

what is a popular way to assess a firms position

Answer 38

SWOT analysis

Question 39

what of a SWOT are firm specific

Answer 39

SW

Question 40

What of a swot are from the external environment

Answer 40

OT

out of companies control

Question 41

describe strengths in a SWOT analysis

Answer 41

asks what is a firm good at? What special skills does the workforce possess? what intellectual property does the firm own? Is the firm in a strong bargaining position with suppliers and other parties?

Question 42

describe weaknesses in a SWOT analysis

Answer 42

looks at outdated products, shortcomings in the workforce and related practices, a weak financial position and missing links in business relationships e.g. alliances

Question 43

describe opportunities in a SWOT analysis

Answer 43

focuses on new markets and technologies, competitor weaknesses and changes in the external environment which can be exploited

Question 44

describe threats in a SWOT analysis

Answer 44

includes social and legislative changes, adverse macro-economic conditions and competitor actions

Question 45

what are the 4 p’s of marketing

Answer 45

Product
Place
promotion

Question 46

talk around product in terms of the 4 p’s

Answer 46

emphasises that any product should be exactly what consumers expect to get and should complete the task for which it is brought

Question 47

talk around place in terms of the 4 p’s

Answer 47

requires that the product should be available from wherever the target customers find it easiest to shop, which could be high street shops, mail order catalogues or the internet

Question 48

talk around promotion in terms of the 4 p’s

Answer 48

should involve advertising, selling and other forms of communication appropriate for the particular group of customers targeted for that product

Question 49

talk around price in terms of the 4 p’s

Answer 49

Needs to be at a level that represents good value for money to customers

Question 50

what can an additional 3 p’s to the original 4 be said to be

Answer 50

people - are an essential ingredient in providing services
process - refers to how a service is delivered
physical environment - the physical element of a service