Products marketing and production

Question 1

Define vertical products diversificatio

Answer 1

Where a firm’s product differs from its rival’s product concerning the quality

Question 2

Define horizontal products diversification

Answer 2

Where a firm’s product differs from its rival products although the products are seen to be of a similar quality

Question 3

What are the two choices firms have when marketing in both a product setting and a market setting. (whats and where)

Answer 3

You can stay where you are or move
Four marketing strategies:
Market penetration
Product development
Market development
Diversification

Question 4

Define market penetration

Answer 4

Increasing the amount of the existing target market who buy the product

Question 5

Explain market development

Answer 5

selling the existing product elsewhere

Question 6

What is the marketing mix

Answer 6

Product - branding, packaging etc
Price - make the price as appealing as possible, good credit deals etc
Place(distribution) - where product is sold
Promotion - targeted advertising

Question 7

Define opportunity costs

Answer 7

Cost of any activity measures in terms of best alternative foregone

Question 8

Define explicit costs

Answer 8

Payments to outside suppliers of inputs (direct payment)

Question 9

Define implicit costs

Answer 9

Costs which do not involve direct payment of money to the third party but which involve a sacrifice of some alternative

Question 10

Define Historic cost

Answer 10

Mostly sunk costs - the original amount the firm paid for factors it now owns

Question 11

Define replacement costs

Answer 11

What the firm would have to pay to replace factors it currently owns

Question 12

What are the factors of production

Answer 12

Labour, Land/raw materials, Capital and Entrepreneurship

Question 13

What is Total physical product or TPP

Answer 13

Total output of a product per period of time that is obtained from a given amount of inputs

Question 14

Explain what difference between fixed and variable factors are

Answer 14

Fixed factors - An input that cannot be increased in supply within a given time period ex: rent short term
Variable factor - An input that can be increased in supply within a given time period ex: electricity

Question 15

Explain the difference between a long term and short term factor

Answer 15

Short term - Period of time over which at least one factor is fixed
Long term - Period of time long enough for all factors to be varied

Question 16

What’s the law of marginal diminishing returns

Answer 16

When one or more factors are held fixed there will come a point beyond which extra output from additional units of variable factor will diminish

Question 17

Explain marginal physical product

Answer 17

Extra output gained by the employment of one more unit of the variable factor

Question 18

Explain average physical product

Answer 18

TPP per unit of the variable factor

Question 19

What are fixed costs

Answer 19

total costs that do not vary with the amount of output produced (TFC) Ex: rent

Question 20

What are varibale costs

Answer 20

Total costs that do vary with the amount of output produced (TVC)

Question 21

What are the total costs

Answer 21

Total Costs - The sum of the total fixed and variable costs (TC=TFC+TVC)

Question 22

Formula for marginal cost

Answer 22

MC = Change in total cost/ change in quantity

Question 23

Where does the MC curve cut the AC and AVC curves

Answer 23

At their minimum point

Question 24

What are the three ways to think when scaling up production

Answer 24

Decreasing returns to scale
Constant returns to scale
Increasing returns to scale

Question 25

Define economies of scale

Answer 25

When increasing the scale of production lead to a lower cost per unit of output - there is a limit to this

Question 26

What are the reasons for economies of scale

Answer 26

Specialisation and division of labour
Indivisibilities
Container principle 
Greater efficiency of large machines
By-products
Multi-stage production
Organisational & administrative economies
Financial economies

Question 27

Define economies of scope

Answer 27

When increasing the range of products produced by a firm reduces the cost of producing each one decreases - overall operation is more efficient

Question 28

Define diseconomies of scale

Answer 28

Where costs per unit of output increase as the scale of production increases

Question 29

Reasons for diseconomies of scale

Answer 29

Managerial diseconomies
Industrial relations
Interdependencies - more complex the firm is structure-wise the harder it is to manage

Question 30

Define external economies of scale

Answer 30

where a firm’s costs per unit of output decrease as the size of the whole industry grows

Question 31

Define external diseconomies of scale

Answer 31

where a firm’s costs per unit of output increases as the size of the whole industry increases

Question 32

What does factor optimisaiton mean and what are some things to consider when analysing this

Answer 32

Examining what is the right balance between the different factors is optimisation

Location, Availability and cost of the factors of production, distance from suppliers and consumers, transport

Question 33

Looking at LRMC and LRAC curves how to tell is there is is economies of scale or not

Answer 33

When there are economies of scale the average costs are more than the marginal costs and vice versa for diseconomies of scale