Firm Strategies

Question 1

Total fixed cost

Answer 1

Costs that do not var with output and are incurred even when output is 0

Question 2

Total variable costs

Answer 2

Costs that vary positively with output and are not incurred when output is 0

Question 3

Marginal cost

Answer 3

Additional cost arising from additional output (ie change in total cost over quantity)

Question 4

Average cost

Answer 4

AVC + AFC

Question 5

Short run

Answer 5

Production period in which there is at least 1 fixed factor

Question 6

Long run

Answer 6

Production period during which all FOP are variable

Question 7

Rationalization

Answer 7

Re-organizing of production to cut waste & duplication when firms merge

Question 8

Internal diseconomies of scale

Answer 8

Refers to a rise in unit COP when firm increases output by expanding its scale of production

Question 9

Internal economies of scale

Answer 9

Refers to a fall in unit COP when firm increases output by increasing scale of production

Question 10

External economies of scale

Answer 10

Refers to a fall in unit COP experienced by a firm as a result of growth in the industry

Question 11

External diseconomies of scale

Answer 11

Refers to a rise in unit COP experienced by the firm as a result of growth in the industry

Question 12

Shifting LRAC

Answer 12

Internal EOS/DOS: movement along LRAC

External: shift down (EOS) or up (DOS)

Question 13

Total revenue

Answer 13

Is the firm’s total earning period of time from the sale of its output

Question 14

When fixed costs change…

Answer 14

Only average cost shifts (MC remains the same)

Question 15

When variable costs change…

Answer 15

Both AC & MC will shift

Question 16

Factors affecting mkt structure

Answer 16

1. Number and size of firms
2. Nature of product
3. Barriers to entry
4. Degree of interdependence

Question 17

Barriers to entry

Answer 17

Refer to various forms of restrictions or obstacles which prevent new firms from entering a market to compete with incumbent firms

Question 18

Productive efficiency

Answer 18

Defined as the production of goods and services at the lowest possible average cost of production

Question 19

Dynamic efficiency

Answer 19

Defined as the situation where firms are technologically progressive in order to reduce the average cost of production and meet changing wants of consumers over time