Economics Theme 3

Question 1

Horizontal Merger

Answer 1

Firms joining at the same stage of the production process.

Question 2

Horizontal Demerger

Answer 2

Firms splitting at the same stage of the production process.

Question 3

Backward Vertical Merger

Answer 3

A firm merging with another firm at the previous stage of the production process.

Question 4

Forward Vertical Merger

Answer 4

A firm merges with another firm at the next stage of the production process.

Question 5

Vertical Demerger

Answer 5

Firms at different stages of the production process are broken up.

Question 6

Conglomerate

Answer 6

When firms that are involved in unrelated business areas merge.

Question 7

Organic Growth

Answer 7

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.

Question 8

Inorganic Growth

Answer 8

Growth through takeovers and mergers.

Question 9

What are some examples of constraints on business growth?

Answer 9

• Regulation
• Marketing Barriers
• Pricing Barriers
• Technical Barriers
• Size of the market
• Lack of resources to access finance
• Minimum efficient scale
• Owner Objectives

Question 10

The Short-Run

Answer 10

A time period in which at least one production factor is fixed.

Question 11

The Long-Run

Answer 11

A time period when all factors of production are variable.

Question 12

Fixed Costs

Answer 12

Costs that do not vary with output such as rent. Occur only in the short run.

Question 13

Variable Costs

Answer 13

Costs that vary with output such as raw materials.

Question 14

Marginal Cost

Answer 14

The change in total costs when one more unit of output is produced.

Change in total cost
________________
Change in quantity

Question 15

Economies of Scale

Answer 15

A fall in long run average costs as output increases.

Question 16

What are some examples of internal economies of scale?

Answer 16

• Financial economies
• Risk-Bearing economies
• Marketing economies
• Managerial economies
• Increased dimensions

Question 17

External economies

Answer 17

Economies of scale which have an impact on the entire industry and lower the long run average cost curve.

Question 18

Diseconomies of scale

Answer 18

An increase in long-run average costs as output increases. This is often associated with managerial difficulties.

Question 19

Profit Maximisation

Answer 19

Occurs when MC=MR

Question 20

Revenue Maximisation

Answer 20

Occurs when MR=0

Question 21

Sales maximisation

Answer 21

When AC=AR

Question 22

Minimum Efficient Scale (MES)

Answer 22

Point of lowest long run average costs, the most efficient level of output.