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Economics: Market Influences on Business Strategies Flashcards

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1
Q

Oligopoly market conditions are characterized by:

A

Few firms in the market

Significant barriers to entry

Differentiated products

Fixed (or semi fixed) prices

Kinked demand curves
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2
Q

4 Major cost functions

A

1) Average Fixed Cost
2) Average Variable Cost
3) Average Total Cost
4) Marginal Cost

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3
Q

Average Fixed Cost

A

Fixed Cost/ Quantity

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4
Q

Average Variable Cost

A

Variable Cost/ Quantity

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5
Q

Average Total Cost

A

Total Cost/ Quantity

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6
Q

marginal Cost

A

Change in total Cost/ Total Quantity

  • Depend soleley on variable costs
  • Fixed Costs fo not influence marginal costs
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7
Q

Strategies under Monopoly

A

Under a monopoly, strategic plans will likely ignore market share and focus on profitability from production levels that maximize profit

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8
Q

Monopoly -Features

A
  • A single firm with a unique product
  • No sub products, Demand is inelastic
  • Easy to enter industry
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9
Q

Change in Demand

A

is a change in the amount of a good demanded resulting from a change in something other than the price of the good.

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10
Q

Fundamental law of demand

A

states that the price of a product (or service) and the quantity demanded of that product or serv are inversely related

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11
Q

Factors that shift demand curve

WRITEN

A

a) Changes in Wealth (Direct)
b) Changes in the price of related goods (subs or comp)
c) Changes in Consumer Income(Direct )
d) Changes in Consumer Tastes or Preferences for a product (Direct)
e) Changes in Consumer Expectations
f) Changes in the Number of Buyers Served by the market (Direct)

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12
Q

Supply

A

Fundamental law of supply states that price and quantity supplied are positively related

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13
Q

Quantity Supplied

A

Is determined by price

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14
Q

Change in Quantity Supplied

A

Movement along the supply curve (Change in Price)

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15
Q

Factors that Shift Supply Curve

ECOST

A

Changes in

  • The price expectations of the supply form
  • Production Costs (If minimum wage increases then supply decreases.
  • The price or Demand for other goods
  • Changes in Subsidies or Taxes
  • Changes in Production Technology
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16
Q

Market Equilibrium

A

Market Clearing price

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17
Q

Changes in Equlibrium

A

If supply or demand shifts then equilibrium changes too

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18
Q

Elasticity of Demand and Supply

A

it is a measure of how sensitive the demand for, or the supply of, a product is to change a price

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19
Q

Price elasticity of demand

A

%Change in Quantity demanded/ % Change in price

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20
Q

Price In-elasticity

A

Absolute price elasticity of demand is less than 1

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21
Q

Price elasticity of Supply

A

measures the change in quantity supplied

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22
Q

Formula for the Price Elasticity of Supply

A

% Change in Quantity Supplied/ % Change in Price

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23
Q

Cross Elasticity

A

The percentage change in the quantity demanaded (or supplied) of one good caused by the price change of another good.

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24
Q

If coefficient is 0

Study These Flashcards
A

The goods are unrelated

25
If there is a negative coefficient then
the goods are complements
26
If there is a positive coefficient then
the goods are subs
27
Income elasticity of demand
the percentage change in quantity demanded for a product for a given percentage change in income
28
Formula for Income elasticity of demand
% Change in number of units of X demanded/ % Change in Income
29
Positive Income Elasticity
= A normal Good
30
Negative Income Elasticity
= An inferior good
31
Production Measures
Used by companies to measure optimal production levels based on available inputs
32
Total Product
= Total Amount of output produced
33
Marginal Product
Change In Total Product/ Change in Labor
34
Perfect Pure Competition
a)Large number of suppliers and customers acting independently b) No barriers to entry c) Very little production differentiation d) Price is set by the market e) Firms control only the quantity produced f) Demand is perfectly elastic g) Because there are no barriers to entry, the entry and exit of new firms ensures that economic profits are zero therefore firms earn a normal rate of return
35
Strategies under Perfect Competition
- Maintain the market share | - Respond to market prices
36
Monopolistic Competition
Many sellers compete to sell a differentiated product in a market into which the entry of new sellers is possible
37
Monopolistic Competition | Assumptions and Market Conditions
a) Numerous firms with differentiated Products | b) Few barriers to entry
38
Strategies under Monopolistic Competition
- maintain the market share - focus on diferentiaion - spend money on advertising
39
Strategies under Oligopoly
- focus on market share | - call for proper amount of advertising to ensure product differentiation
40
Monopoly
represents concentration of supply in the hands of a single firm.
41
Assumptions and market characteristics of Monopoly
A single firm with a uniue product with no subs in the market. Price setters -Other firms cannot come in
42
Strategies under Monopoly
-They will likely ignore market share bc there is no competion. They are going to focus on profitability
43
Factors that influence Strategy -Internal Factors | Strengths and weaknesses
a) Innovation of product lines | b) Competence of management
44
Factors that influence Strategy-External Factors
a) Competitive Environment of the industry | b) Competitive Environment of the Firm
45
actors that influence Strategy-External Factors b) Competitive Environment of the Firm Porter's 5 forces
1) barriers to entry 2) Market Competitiveness 3) Existence of Subst. products 4) Bargaining power of the customers 5) Bargaining power of the suppliers
46
Competitive advantage
determined by the value the firm offers to its customers minus the cost of creating that value
47
Cost Leadership Advantage
- Lower costs - firm has been able to produce and sell its product less than its rivals. a) build Market Share b) Match the price of rivals
48
Differentiation Advantage
"Better" Product Perceives the firm's product to be superior in some way to those of its rivals. Therefore, they are willing to pay a higher price for its uniqueness a) Build Market Share b) Increase the price.
49
5 Basic Typed of Competitive Strategies
1) Cost leadership focused on a broad range of buyers 2) Cost leadership focused on a narrow range of buyers 3) Differentiation focused on a broad range of buyers 4) Differentiation focused on a narrow range of buyers 5) Best cost provider= Cost leadership + Differentiation
50
Cost leadership strategies work well
when buyers have large amounts of bargaining power and are able to switch between competitive products without incurring significant cost
51
Cost leadership strategies fails
when companies focus too much on cutting cost. This can undermine the quality of the product
52
Differentiation strategies work well
When customers are able to see value in a product, when the product appeals to different people for different reasons
53
Differentiation strategies fails
When the cost of differentiation product exceeds the benefit
54
Best Cost Strategies
High quality product at a reasonable prices
55
When Best cost strategies work well
When generic products are not acceptable to the varied needs and preferences of the buyers.
56
When Best cost strategies fail
when firms try to be too much of both things
57
Value Chain Analysis
Managers must determine the flow of activities undertaken by the organization to produce a service or product and critique the value added to the customer by each link in the value chain. It assesses the ability of the firm to obtain a competitive advantage
58
Approach of Value Chain Analysis
1) Internal Cost Analysis -sources of profits and costs of the internal activities 2) Internal Differentiation Analysis -create value through differentiation. When the customer perceives that the firm's product is superior to those of its rivals. 3) Vertical Linkage Analysis Where value can be created external to the firm's operations

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