Economic Concepts and Analysis Market Influences on Business Strategies Flashcards
When there is equilibrium in a monopolistically competitive industry, a firm:
will operate inefficiently with price greater than marginal revenue.
Given free entry and exit in a monopolistically competitive industry, firms only earn normal profits in the long-run. However, since the firm faces a downward-sloping demand curve with MR
Merger and acquisition strategies:
Domestic or global mergers/acquisitions allow an organization to:
•lower risk by diversifying into additional industries,
•enter new markets,
•provide possible opportunities for quick profitability in new areas,
•provide opportunities to take advantage of economies of scope,
•potentially lower costs along the value chain of activities, and
•broaden the strength of resources and capabilities.
Demand management in the supply chain is designed to:
Demand management in the supply chain is designed to synchronize supply and demand to reduce inventory and production is pulled through the plant in response to specific customer needs.
One example of the definition of supply chain management is
The use of a network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products.” In its simplest sense supply chain management is defined as getting the right product to the right place at the right time at minimum cost.
Perfect competition is characterized by :
a large number of sellers producing a standardized product with easy entry and exit into and out of the industry. An individual seller has no ability to influence the product price.
The law of demand states that:
there is an inverse relationship between the price of a product and the quantity demanded if the product. The higher the price, the lower the quantity demanded. This would be movement along the demand curve
A best-cost producer can gain a competitive advantage:
by delivering a superior product at a lower price than the competition.
The best cost provider attempts to provide a product with superior quality, features, durability, service, etc. at the lowest cost. In other words, they are trying to give the buyer more value for their money.
Which of the following characteristics would indicate that an item sold would have a high price elasticity of demand?
The item has many similar substitutes.
The elasticity of demand is a measure of the responsiveness of consumers to a change in a product’s price. The law of demand states that there is an inverse relationship between the price and quantity of product demanded. In other words, the higher the price, the less of the product that is demanded by buyers.
The following factors affect the elasticity of demand:
•The larger the number of substitute products that are available, the greater the elasticity of demand.
•The higher the price of the product relative to the consumer’s income, the more elastic the demand for the product. In other words, a major appliance would have a greater elasticity of demand than a paperback book.
•The more that a particular product is placed in a “luxury” category by consumers (as opposed to being considered a necessity), the greater the elasticity of demand.
•The more time that consumers have to respond to price changes, the greater the elasticity of demand. For example, it is difficult for consumers to respond immediately to higher gasoline prices, but over a longer period of time, they can purchase more fuel-efficient vehicles or establish better public transportation systems.
Companies will often use strategic alliances and collaborative partnerships in order to:
- open up or improve access to new markets,
- learn from other companies by sharing technology and various expertises,
- improve supply chain efficiency,
- get into critical countries in an effective and efficient manner, and
- gain access to necessary resources.
When implicit costs are greater than zero and economic profits in an industry equal zero:
accounting profits will be greater than zero.
A firm that earns a normal profit (zero economic profit) has revenue equal to total cost (explicit plus implicit costs). Economic profit is generally lower (never higher) than accounting profit due to the fact that implicit costs are included in the calculation of in economic profits.
Firms in a monopolistically competitive industry produce
differentiated products, engage in non-price competition, and face a downward sloping demand curve.
There are no significant barriers to entry in the market structure.
Firms in a perfectly competitive industry produce
a standardized product, find non-price competition ineffective, and face a perfectly elastic demand curve. There are no significant barriers to entry in the market structure.
In the short-run, average variable cost for a firm is rising; therefore:
marginal cost is above average variable cost.
The average-marginal rule states that when the marginal magnitude is above the average magnitude, the average magnitude rises; therefore, since average variable cost is rising, marginal cost must be higher than average variable cost.
Income and employment tend toward an equilibrium level where:
aggregate supply equals aggregate demand and intended savings equals intended investment.
Aggregate supply equaling aggregate demand is one criterion for market equilibrium. Another criterion is that consumers and businesses agree on what they will save and invest respectively. Although actual savings will always equal actual investment, this, however, does not guarantee an equilibrium level of income and employment.
If businesses note that their intended investment levels produce too high or too low of inventory levels, the market will not be in equilibrium, since too little or too much has to be purchased. Therefore, until these imbalances are cleared up, the economy will not be in equilibrium. (Note that actual investment does not usually equal intended investment.)
Price Discrimination
roduct or service. In pure price discrimination, the seller will charge each customer the maximum price that he or she is willing to pay. In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price.
