Economics

Question 1

what are firms

Answer 1

a firm is a business organisation under an independent or distinct ownership

Question 2

what is an industry

Answer 2

an industry is a group of firms that produce the same or similar product or service.

Question 3

classification of firms
(economic sector)

Answer 3

Primary
Secondary
Tertiary

Question 4

what is a small firm

Answer 4

A small firm is an independently owned and operated enterprise that is limited in size and in revenue depending on the industry

Question 5

advantages of small firms

Answer 5

-they are the major employers in an economy
-they provide many of the raw material and component parts to larger firms
-they provide good and services to the local economy

Question 6

Disadvantage of small firms

Answer 6

-They usually have limited production capacity and will not be able to meet a large demand for their products
- Small firms are usually unable to benefit from the cost advantages that large firms have.
-They can sometimes find it difficult to raise sufficient capital to finance the expansion of the firm

Question 7

Types of mergers

Answer 7

Vertical integration (forward or backward)
Horizontal Integration
Conglomerate/lateral Integration

Question 8

Vertical Integration

Answer 8

Integration/merger of firms engaged in the production of the same type of good but at different levels of production

Question 9

Backward Vertical Integration

Answer 9

when a firm integrates with a firm that is at an earlier stage of production than theirs and it takes place towards the source of materials

Question 10

Forward Vertical Integration

Answer 10

when a firm integrates with a firm that is at a later stage of production than theirs and it takes place towards the market for the final products.

Question 11

Horizontal Integration

Answer 11

this refers to the integration of firms engaged in the production of the same type of good at the same level of production

Question 12

Lateral/Conglomerate Integration

Answer 12

this occurs when firms producing different type of products integrate. it occurs when two or more firms from different industries merge.they could be at the same or different stages of production.

Question 13

Economies of Scale

Answer 13

this refers to the cost advantage experienced by a firm when it increases its level of output.

Question 14

Internal economies of scale (Examples)

Answer 14

Purchasing Economies
Marketing Economies
Technical Economies
Financial Economies

Question 14

Diseconomies Of Scale

Answer 14

diseconomies of scale are the cost disadvantages that economic actors accrue due to an increase in organisational size or in output, resulting in production of goods and services at increased per-unit costs

Question 14

External Economies Of Scale

Answer 14

Access to skilled workers
Transport links

Question 15

Variable costs or Total Variable Cost

Answer 15

Variable costs (VC) are costs that vary directly with output. The more the production, the more the variable costs are. Examples: wages, electricity bill, cost of raw materials.
TVC = TC – TFC
TVC = AVC x Q (Output)

Question 15

External diseconomies of scale

Answer 15

Cost of labour and other factors
pollution
congestion
More expensive housing

Question 15

Internal diseconomies of scale

Answer 15

Management problems
Technical problems
Failure to sell output

Question 15

what is cost

Answer 15

Cost of production, refers to how much it is to make a good/service.
(cost is also known as expenses)

Question 15

Fixed Costs

Answer 15

Fixed Costs (FC) or Total Fixed Costs (TFC)
Fixed costs are costs that do not change as the level of output changes and they have to be paid even when no production is taking place. These costs do not depend on the amount of output produced. e.g. building rent, management salaries, insurance, bank loan repayments etc.
FC = TC – TVC
FC = AFC x Q (Output)

Question 15

Total Cost

Answer 15

Total Cost (TC)
The total cost is calculated by adding the fixed costs and the variable costs at different levels of output.
TC = TFC + TVC
TC = ATC x Q (Output)

Question 16

Average Fixed Costs

Answer 16

Average Fixed Cost (AFC)
It is the fixed cost per unit of output.
AFC = 𝑻𝑭𝑪 𝑸
AFC = ATC – AVC

Question 17

Average Variable Cost

Answer 17

Average Variable Cost (AVC)
It is the variable cost per unit of output.
AVC = 𝑻𝑽𝑪 𝑸
AVC = ATC – AFC

Question 18

Average Total Cost

Answer 18

Average Total Cost (ATC)
It is cost per unit of output
ATC = 𝑻𝑪 𝑸
ATC = AFC + AVC

Question 19

What is Revenue

Answer 19

Revenue is the total income a firm earns from the sale of its goods and services. The more the sales, the more the revenue.

Question 20

Total Revenue

Answer 20

Total Revenue (TR)
Total Revenue is the total money received by a firm from selling what it has produced.
TR = P x Q
P = Price per unit Q = Quantities sold

Question 21

Average Revenue

Answer 21

Average Revenue (AR)
Average Revenue is the price a firm charge for its product.
AR = P AR = 𝑻𝑹
𝑸