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MICRO ECONOMICS IMPROVED > T3 BUSINESS OBJECTIVES AND GROWTH > Flashcards

T3 BUSINESS OBJECTIVES AND GROWTH Flashcards

1
Q

what is Profit satisfice

A

where a firm or individual seeks to achieve an acceptable or satisfactory level of profit rather than maximizing profits.

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2
Q

Reasons why some firms grow while others stay small (4)

A

However, firms might lack the finance to expand

However, regulations might prevent firms from growing

However, firm might be in a niche market or selling personalised goods

diseconomies of scale

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3
Q

Write the definition of: The divorce of ownership and control

A

When the managers/directors of a firm are different from the owners of the firm.

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4
Q

Write the definition of: The principal-agent problem

A

The principal-agent problem is when the agent pursues different objectives to the principal

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5
Q

What is an example of the principal-agent problem

A

Workers pursuing different goals than what the ceo wants.

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6
Q

Write the definition of: Private sector firms

A

firms owned by private individuals.

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7
Q

Not-for-profit firms

A

Not-for-profit firms are not looking to just make a profit, they also pursue other social and environmental objectives.

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8
Q

what is organic growth

A

Organic growth is when a firm grows by investing in itself to increase output.

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9
Q

Inorganic growth

A

is when a firm grows by acquiring, or merging with, another firm.

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10
Q

backwards vertical integration is when:

A

A firm integrates with another firm who is further away from the consumer in the same production process

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11
Q

What are the 4 types of inorganic growth

A

Backward vertical integration

Forward vertical integration

Horizontal integration

Conglomerate integration

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12
Q

What is forward vertical integration

A

A firm integrates with another firm who is closer to the consumer in the same production process

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13
Q

What is horizontal integration

A

A firm integrates with another firm at the same stage of the production process

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14
Q

What is conglomerate integration

A

is when two firms in unrelated industries join together

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15
Q

What is vertical integration

A

Vertical integration is when firms at different stages of the same production process join together.

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16
Q

what are the pros of organic growth? (2)

A

using a bank loan or reinvesting profit to grow organically, a firm’s owner will keep control over the company. So the owner will take most of the firm’s profit.

organic growth is low risk because the firm expands by increasing its own output in a market it is already familiar with and selling a good/service it is already good at producing

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17
Q

What are the cons of organic growth

A

organic growth can mean slower growth. Whereas a firm can grow very quickly inorganically by merging/acquiring

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18
Q

What are the pros of vertical integration

A

Better access
Control of supply chain
reduce intermediary costs

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19
Q

What are the cons of vertical integration

A

Regulation
costs from diseconomies of scales
costs from acquisitions
lack of expertise

20
Q

Internal economies of scale are when

A

A firm experiences reductions in long run average cost, as a firm’s size increases

21
Q

What are the different types of internal economies of scale

A

RMFPTM. Risk-bearing, Managerial, Financial, Purchasing, Technical, Marketing.

22
Q

what are the pros of horizontal mergers? (3)

A

economies of scale which reduce a firm’s LRAC

reduces competition

rationalisation

23
Q

What are the cons of horizontal integration (3)

A

diseconomies of scale
job losses
brand dilution

24
Q

What is rationalism in the context of horizontal mergers

A

when firms reorganise to avoid duplicated costs

25
Q

What are the pros of conglomerate integration

A

increase awareness
risk bearing economies
knowledge transfers

26
Q

What are the cons of conglomerate integration

A

diseconomies of scale
lack expertise
brand dilution

27
Q

What are the three types of diseconomies of scale

A

Alienation
Bureaucracy
Communication

28
Q

What does successful knowledge transfers through conglomerate integration lead to

A

increased dynamic efficiency

29
Q

What is demerging

A

Demerger refers to the process of a company separating one or more of its business units or divisions into independent entities

30
Q

What are the benefits of demergers

A

reduce the size of the firm. This reduces diseconomies of scale

firms can separate and specialise in their own goods/services

firm can sell of one of its divisions and its assets, to raise money

avoid conflicts between different departments because of culture differences

31
Q

What are the cons of demergers

A

job loss or decrease in job security

reduces in economies of scale may lead to higher prices

32
Q

Pros and cons of demergers to workers

A

P: reduced cultural conflicts

C: Decreased job security

33
Q

Why do demergers decrease job security

A

Workers won’t know which new division they’ll join after the demerger

if one of the division is sold to raise funds, workers may lose their jobs

34
Q

what is meant by influencers of the firm

A

owners, shareholders, directors/managers, workers and consumers.

35
Q

What are Shareholders objectives

A

Shareholders usually look to maximise profit. This is done by an increase in the stock price

36
Q

Directors/managers objectives (2)

A

Maximising sales increases their sales bonus

maximising revenue increases company size, boosting their prestige.

37
Q

Workers objectives (3)

A

higher wages, job security and improved working conditions.

38
Q

Consumers objectives

A

lower prices, better customer service and quality,

they also care about social and environmental causes

39
Q

Where will a revenue-maximising firm produce:

A

MR = 0

40
Q

Where does a sale maximising firm produce

A

AR = ATC / AC

41
Q

What is meant by sales maximisation

A

Sales maximisation is when a firm maximises its sales without making a loss

This is achieved where AR = AC

42
Q

What is meant by revenue maximisation

A

Trying to maximise sales in order to

43
Q

divorce of ownership and control can lead to:

A

principal agent problem

44
Q

Explain how vertical integration can be an anti-competitive practice:

A

Firms can vertically integrate to take control of scarce resources

and then refuse to let new firms use these scarce resources, stopping them from entering the market.

45
Q
A

MICRO ECONOMICS IMPROVED (14 decks)

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