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Microeconomics Booklet 4 > Definitions > Flashcards

Definitions Flashcards

1
Q

Fixed costs

A

Costs that do not vary with the output eg rent and advertising

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2
Q

Variable costs

A

Costs that do vary with output eg wages and raw materials

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3
Q

Semi variable costs

A

Costs that is fixed until a certain level of production is reached after which cost become variable

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4
Q

Marginal cost

A

How much it costs firms to produce an additional unit of output

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5
Q

Normal profit

A

A level of profit just enough to cover the opportunity cost of F.O.P being used in their current employment

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6
Q

Economic profit / supernormal profit

A

Profit over and above normal profit

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7
Q

Explicit costs

A

Fixed and variable costs actually paid such as rent and raw materials

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8
Q

Production

A

Process of combining inputs into outputs

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9
Q

Diminishing marginal returns

A

Adding an additional unit of input of One F.O.P that decreases output

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10
Q

Total physical product

A

As the number of workers increases so does the output

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11
Q

Marginal physical product

A

Increase in total physical product for each worker

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12
Q

Marginal return

A

What is gained by adding an additional unit of one F.O.P

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13
Q

Increasing returns to scale

A

Increase in quantity of all F.O.P employed leads to more than proportionate increase in output

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14
Q

Constant returns to scale

A

Increase in quantity of all F.O.P employed leads to a proportionate increase in output

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15
Q

Decreasing returns to scale

A

Increase in quantity of all F.O.P leads to less than proportionate increase in output

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16
Q

Economies of scale internal and external

A

Reduction in a firms long - run averages costs due to an increase in the scale of firms operations (internal) or the growth of the industries (external )

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17
Q

Diseconomies of scale internal

A

Increase in LRAC from an increase in a scales operations

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18
Q

Diseconomies of scale external

A

Increase in LRAC from an increase in size of an industry

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19
Q

Invention

A

Discovery of new ideas though R and d , new products

20
Q

Innovation

A

New ideas to bring a new product to the market , process of transforming inventions

21
Q

Process innovation

A

Finding new ways to produce a product

22
Q

Creative destruction

A

Barriers by entry are removed from markets , allowing new firms to replace older ones creating new markets out of nothing

23
Q

Capitalism

A

Means of production are controlled by the private sector

24
Q

Divorce between ownership and control

A

Firms that are ran by people who don’t own them

25
Q

Principle - Agent problem

A

Shareholders appoint an agent (manager) to run the firm but do not act as they wish because they have different incentives

26
Q

Profit satisficing

A

Firms aiming to achieve a certain level of profit and is less concerned with achieving any profit beyond this point

27
Q

Why would a business want to grow ?

A

To gain market power - may become price setters (monopoly)

Improve brand recognition -demand for products may become price inelastic

Achieve economies of scale

Increase firms profit

28
Q

Internal / organic growth

A

Firm purchases new F.O.P

29
Q

External growth

A

Either merger or takeover of another business

30
Q

Takeover

A

One firm buys another

31
Q

Merger

A

Joining of two existing firms

32
Q

Horizontal

A

Two firms at same stage of production in the same industry join together e.g Disney and Pixar

33
Q

Forward vertical

A

Firm takes over another in the same industry but at later stage of production

Eg dealership / show room to the company Ford

34
Q

Backward vertical

A

Firms take over another in the same industry but at an earlier stage of production

Eg metal manufacturer to give to the company Ford

35
Q

Conglomerate

A

Two firms with no common Interest come together eg Ford and adidas

36
Q

Contestable markets

A

A market free from barriers to entry or exit

37
Q

Monopoly

A

Dominant firm at least 25% market share

38
Q

Barriers to entry

A

Factors that make it difficult / expensive for firms to enter a market

39
Q

Barriers to exit

A

Factors that make it difficult / expensive for firms to leave a market

40
Q

Costs

A

Amount of money spent

41
Q

Revenue

A

Money gained

42
Q

Revenue

A

Money gained

43
Q

Return

A

Output produced

44
Q

Return

A

Output produced

45
Q

Accounting profit

A

Amount of profit which only considers explicit costs (TF and TV costs ) and not opportunity cost (implicit)

46
Q

Average costs

A

How much is cost firms to produce one unit of output

Microeconomics Booklet 4 (2 decks)

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