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Comprehensive Year 2 > Micro Comprehensive Year 2 > Flashcards

Micro Comprehensive Year 2 Flashcards

1
Q

What is a business objective?

A

Something a business wants to achieve.

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2
Q

What does maximisation mean?

A

To make something large or as great as possible.

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3
Q

What is profit maximisation?

A

When a business aims to have the greatest difference between total costs and total revenue, leading to the highest profit.

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4
Q

What is sales revenue maximisation?

A

A firm aiming to have the greatest amount of money from sales as possible.

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5
Q

What is sales volume maximisation?

A

When a business aims to sell as many units of a good or service as possible.

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6
Q

What is growth maximisation?

A

When a firm aims to increase its size as much as possible.

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7
Q

What is utility maximisation?

A

When the managers of a business aim to increase their own happiness as much as possible.

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8
Q

Give an example of how a manager in a business might maximise their own utility.

A

Awarding themselves a wage increase or employing more people to have a bigger team **or **increasing the company car allowance.

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9
Q

What is profit satisficing?

A

When a firm earns enough profit to keep the owners happy.

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10
Q

What is social welfare as an objective?

A

When a business aims to make society better through its actions.

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11
Q

What is CSR?

A

Corporate Social Responsibility

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12
Q

What is the principal in the principal agent problem?

A

The owners or shareholders

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13
Q

What is the agent in the principal-agent problem?

A

The managers

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14
Q

What is the principal agent problem?

A

The conflict between the objectives of the principals (owners) and their agents (managers) who take decisions.

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15
Q

How can the principal agent problem be overcome?

A

By improved monitoring of the agents’ decisions or by giving managers an incentive to focus on profits e.g. shares, dividend, profits.

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16
Q

What is X-inefficiency?

A

When a firm is not operating at minimum cost.

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17
Q

What is organic growth?

A

Where a firm grows in size due to being successful.

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18
Q

What is a takeover?

A

Where a firm takes control of another firm with the aim of external growth.

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19
Q

What is a merger?

A

A merger is the voluntary joining together of two companies into a new company.

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20
Q

What is a conglomerate?

A

A large firm which owns and controls several different businesses.

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21
Q

Short run

A

period of time when at least one factor of productions fixed in supply.

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22
Q

Long run

A

the period over which the firm is able to vary the inputs from all the factors of production.

23
Q

Law of diminishing returns

A

when the firm increases the input from one factor while other factors remain fixed, eventually the return on the increased factor will reduce.

24
Q

Marginal physical product of labour (MPP)L

A

The additional quantity of output produced by an additional unit of labour.

25
Q

Total cost

A

The sum of all costs incurred in producing a given level of output.

26
Q

Average Cost

A

Total cost divided by quantity (unit cost)

27
Q

Fixed costs

A

Costs that do not vary with the level of output e.g. rent, management salaries

28
Q

Variable costs

A

Costs that do vary with the level of output e.g. labour, raw materials, energy

29
Q

Sunk costs

A

Costs which will not be recovered if a firm stops trading.

30
Q

Economies of scale

A

When a firm increases the scale of production and this leads to lowers long-run average costs.

31
Q

Technical economies of scale

A

Larger scale capital goods e.g. container ship of combined harvester.

32
Q

Marketing economies of scale

A

Fixed cost of advertising and marketing will be spread over larger number of units.

33
Q

Management economies of scale

A

The costs of management can be spread over larger number of units or more specialist staff can be employed in accounting, human resources etc.

34
Q

Financial economies of scale

A

Larger firms can borrow money at lower rates of interest.

35
Q

Purchasing economies of scale

A

Bulk buying raw materials can lead to a lower price.

36
Q

External economies of scale

A

Economies of scale which arise from the expansion of the industry in which a firm is operating.

37
Q

Internal economies of scale

A

Economies of scale which arise from the expansion of a firm.

38
Q

Concentration economies of scale

A

Where a firm is located close to other firms in the same industry.

39
Q

Technology and skills external economies of scale

A

Skilling of a pool of labour through a local college e.g. Burnley College to local businesses in Burnley.

40
Q

Economies of scope

A

Economies of scale to large firms who provide a range of products e.g. Nestle

41
Q

Diseconomies of scale

A

When a firm’s increased scale of production leads to higher long-run average costs.

42
Q

Communication diseconomies of scale

A

It becomes more difficult to communicate across the organisation.

43
Q

Co-ordination diseconomies of scale

A

Becomes more difficult to co-ordinate production across a range of factories or countries.

44
Q

Motivational diseconomies of scale

A

Managers become demotivated in larger firms. This can lead to profit-satisficing and the principal-agent problem.

45
Q

Minimum Efficient Scale

A

The level of output at which long-run average cost stops falling as output increases. Bottom of the LAC.

46
Q

Constant returns to scale

A

Range where the minimum efficient scale is constant.

47
Q

Total Revenue

A

The revenue received by a firm from its sales of a good or service.

48
Q

Average revenue

A

The average revenue received by a the firm per unit of output. Total revenue divided by quantity. It is also price without taxes.

49
Q

Marginal revenue

A

The additional revenue received by the firm if it sells an additional unit of output.

50
Q

Normal profit

A

the return needed for a firm to stay in the market in the long run. Includes opportunity cost.

51
Q

Supernormal profit

A

Profit above normal profits.

52
Q

Accounting profit

A

Profit made by a business based on explicit costs incurred but excluding opportunity cost.

53
Q

Shut down price

A

The price below which a firm will choose to exit the market because it is not able to pay for its variable costs.

Comprehensive Year 2 (1 decks)

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