Economics Theme 3 Flashcards
Horizontal Merger
Firms joining at the same stage of the production process.
Horizontal Demerger
Firms splitting at the same stage of the production process.
Backward Vertical Merger
A firm merging with another firm at the previous stage of the production process.
Forward Vertical Merger
A firm merges with another firm at the next stage of the production process.
Vertical Demerger
Firms at different stages of the production process are broken up.
Conglomerate
When firms that are involved in unrelated business areas merge.
Organic Growth
Organic Growth is achieved by investment within a firm by the firm. This is done by ploughing profits back into the business or via a loan.
Inorganic Growth
Growth through takeovers and mergers.
What are some examples of constraints on business growth?
- Regulation
- Marketing Barriers
- Pricing Barriers
- Technical Barriers
- Size of the market
- Lack of resources to access finance
- Minimum efficient scale
- Owner Objectives
The Short-Run
A time period in which at least one production factor is fixed.
The Long-Run
A time period when all factors of production are variable.
Fixed Costs
Costs that do not vary with output such as rent. Occur only in the short run.
Variable Costs
Costs that vary with output such as raw materials.
Marginal Cost
The change in total costs when one more unit of output is produced.
Change in total cost
________________
Change in quantity
Economies of Scale
A fall in long run average costs as output increases.
What are some examples of internal economies of scale?
- Financial economies
- Risk-Bearing economies
- Marketing economies
- Managerial economies
- Increased dimensions
External economies
Economies of scale which have an impact on the entire industry and lower the long run average cost curve.
Diseconomies of scale
An increase in long-run average costs as output increases. This is often associated with managerial difficulties.
Profit Maximisation
Occurs when MC=MR
Revenue Maximisation
Occurs when MR=0
Sales maximisation
When AC=AR
Minimum Efficient Scale (MES)
Point of lowest long run average costs, the most efficient level of output.
