Lecture 4: Profit & Loss/ Growth Flashcards

1
Q

Define profit

A

I = PQp - ATC x Qp

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2
Q

Define profit and loss decisions

A
- Decrease fixed and variable costs => change production 
Increase price (at fixed demand) or increase demand (at fixed price) => change market
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3
Q

Growth: Why?

A

Market changes = consumer tastes (expectations), regulations, technology develops
- Investors expect returns> investment so business must grow
Grow to counter natural ‘decay’ i.e. retirements, new jobs, machines wear out

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4
Q

Growth: How?

A
  • Through the profit&loss decisions
    • Decreased fixed and variable costs = economies of scale
      Innovate new processes
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5
Q

Growth: Limits?

A
  • Governments fund their activities through borrowing, requiring national economies to grow so they can repay the loans (government bonds) with interest
    Public companies fund their activities through share sales, requiring return of dividends
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6
Q

Economy of scale example: Increase production quantity

A
  • Buying more means lower prices?
    • Training/admin costs per unit reduced?
      Control larger share of market, more control on price + demand+ supply, availability of raw materials and their price?
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7
Q

Diseconomy of scale example: Increase production quantity

A
  • Buying more means limited resources and hence price increases
    • Insufficient adequately skilled labour
      More investment in stock = more risk if market fails
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