Definitions

Question 1

Allocative efficiency

Answer 1

Occurs when resources are distributed in such a way that no consumers could be better off without other consumers being worse off.
-exists when P=MC

Question 2

Average cost / Average total cost

Answer 2

AC of production per unit

AC = TC/Q

Question 3

Average fixed costs

Average variable costs

Answer 3

AFC = total fixed costs/output. TFC/Q

AVC= total variable cost/output. TVC/Q

Question 4

Average revenue

Answer 4

AR = TR/Q = P x Q/Q = P

Question 5

Barriers to entry

Answer 5

Factors/obstacles which make it difficult for a firm to enter an industry and compete with others

Question 6

Barriers to exit

Answer 6

Factors/obstacles making it difficult for a firm to leave an industry

Question 7

Break even point

Answer 7

The level of output where total revenue equals total cost

Question 8

Concentrated market

Answer 8

A few firms have control in the market and most of the output is produced by these firms

Question 9

Concentration ratio

Answer 9

Is a measure of the total output produced in an industry by a given number of firms in the industry.

Question 10

Conglomerate merger

Answer 10

A merger from two firms producing unrelated products

Question 11

Contestable market

Answer 11

A market where there is freedom of entry to the industry and where cost of exit are low

Question 12

Deadweight welfare loss

Answer 12

A loss to society due to market failure

Question 13

Decreasing returns to scale

Answer 13

A doubling of input leads to a less than doubling of output

Question 14

Demerger

Answer 14

When a firm splits into two or more independent businesses

Question 15

Deregulation

Answer 15

The process of removing government controls from markets

Question 16

Diseconomies of scale

Economies of scale

Answer 16

A rise in the long run average costs of production as output increases

A fall in long run average costs of production as output rises

Question 17

External economies of scale

Answer 17

External eos occurs when an industry grows and it’s long run average costs fall

Question 18

Fixed costs

Answer 18

Costs which do not vary with the level of output

Question 19

Game theory

Answer 19

The analysis of situations in which players are interdependent

Question 20

Heterogeneous products.

Homogenous products

Answer 20

Branded goods which are similar but not identical made by different firms

Products made by different firms but which are identical

Question 21

Horizontal merger/intervention

Answer 21

A merger between two firms in the same industry at the same stage of production

Question 22

Increasing returns to scale

Answer 22

A doubling of Inputs lead to a more than doubling of output

Question 23

Interdependence

Answer 23

• oiligopoly

- firms make a decision in the light of the behaviour or expected reactions of the other firms in the industry

Question 24

Limit pricing

Answer 24

When a firm rather than profit maximising, sets a low enough price to deter new entrants, from coming into its market