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Economics AL Flashcards > T3.2 - 3.3: Business Objectives, Revenues, Costs & Profit > Flashcards

T3.2 - 3.3: Business Objectives, Revenues, Costs & Profit Flashcards

1
Q

Business ethics

A

concerned with the social responsibility of management towards the firm’s major stakeholders, the environment and society in general.

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2
Q

Competitive advantage

A

When a company has an advantage over another in selling a product or
service.

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3
Q

Corporate governance

A

Practices, principles and values that guide a firm and its activities.

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4
Q

Corporate social responsibility (CSR)

A

Happens when companies integrate social and environmental concerns into their business operations and in their interaction with their stakeholders on a voluntary basis.

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5
Q

Corporate strategy

A

A company’s aims in general, and the way it hopes to achieve them - strategic objective which supports the achievement of corporative aims.

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6
Q

Multinational

A

A company with subsidiaries or manufacturing bases in several countries.

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7
Q

Profit maximisation

A

Profit maximisation is an output when marginal revenue = marginal cost
MC=MR.

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8
Q

Revenue maximisation

A

Revenue maximisation is an output when marginal revenue = zero (MR=0).

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9
Q

Sales maximisation

A

Sales maximisation is achieving the highest level of output consistent with a firm making at least normal profit. The sales maximising equilibrium output is where AC=AR.

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10
Q

Satisficing

A

involves the owners setting minimum acceptable levels of achievement in terms of revenue and profit.

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11
Q

Short-termism

A

When a business pursues the goal of maximising short-term profits because
of a fear of being taken over or having the stock market mark down the value. Makes it difficult for a business to follow longer-term objectives.

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12
Q

What is average revenue?

A

Average revenue is the total revenue divided by the quantity of output sold.

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13
Q

What is break-even output?

A

Break-even output is the level of production at which total revenue equals total costs, resulting in no profit or loss.

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14
Q

What is consumer surplus?

A

Consumer surplus is the difference between the total amount consumers are willing to pay for a good or service and the total amount they actually pay.

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15
Q

What is marginal revenue?

A

Marginal revenue is the revenue earned from selling the last unit of output.

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16
Q

What is revenue?

A

Revenue is the total income generated from the sale of goods or services.

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17
Q

What is total revenue?

A

Total revenue (TR) is found by multiplying price (P) by output (Q).

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18
Q

What is average total cost?

A

Average total cost is the total cost divided by the quantity of output.

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19
Q

What is average cost?

A

Average cost is the total cost divided by the quantity of output.

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20
Q

What is average fixed cost?

A

Average fixed cost is the total fixed cost divided by the quantity of output.

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21
Q

What is average variable cost?

A

Average variable cost is the total variable cost divided by the quantity of output.

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22
Q

What is capacity?

A

Capacity is the maximum amount that can be produced by a plant, company, or economy over a given period of time.

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23
Q

What does capital intensive mean?

A

Capital intensive refers to an industry or production process that requires a relatively large amount of capital compared to labor.

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24
Q

What are cost synergies?

A

Cost synergies are the cost savings that a buyer aims to achieve as a result of taking over or merging with another business.

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25
Q

What is cost-plus pricing?

A

Cost-plus pricing is where a firm fixes the price for its product by adding a fixed percentage profit margin to the average cost of production.

26
Q

What are cost-reducing innovations?

A

Cost-reducing innovations allow businesses to make higher profits with a given level of demand.

27
Q

What is diminishing marginal productivity?

A

Diminishing marginal productivity occurs when adding more of a variable factor to a fixed factor results in a decrease in the additional output produced.

28
Q

What are fixed costs?

A

Fixed costs are business expenses that do not vary directly with the level of output in the short run.

29
Q

What is the long run?

A

The long run is a period of time when all factors of production are variable and a business can change the scale of production.

30
Q

What is marginal cost?

A

Marginal cost is the change in total costs from increasing output by one extra unit.

31
Q

What is producer surplus?

A

Producer surplus is the difference between what producers are willing to supply a good for and the price they receive.

32
Q

What is total cost?

A

Total cost is the sum of total fixed cost and total variable cost.

33
Q

What is total fixed cost?

A

Total fixed cost is all fixed costs added together.

34
Q

What is total variable cost?

A

Total variable cost is all variable costs added together.

35
Q

What are variable costs?

A

Variable costs are business costs that vary directly with output.

36
Q

What are constant returns to scale?

A

Constant returns to scale occur when long run average cost remains constant as output increases.

37
Q

What are diseconomies of scale?

A

Diseconomies of scale occur when a business expands beyond the optimal size, leading to rising long run average costs.

38
Q

What are economies of scale?

A

Economies of scale refer to falling long run average costs as output increases.

39
Q

What are economies of scope?

A

Economies of scope occur when it is cheaper for a business to produce a broader range of products.

40
Q

What is excess capacity?

A

Excess capacity is the difference between the current output of a business and the total amount it could produce.

41
Q

What is the experience curve?

A

The experience curve refers to falling unit costs as production increases due to improved efficiency and skill.

42
Q

What are external diseconomies of scale?

A

External diseconomies of scale occur when the growth of an industry leads to higher costs for businesses within that industry.

43
Q

What are external economies of scale?

A

External economies of scale occur when the expansion of an industry leads to benefits for suppliers.

44
Q

What are internal economies of scale?

A

Internal economies of scale are reductions in long run average cost from an expansion of the size of a business.

45
Q

What is minimum efficient scale?

A

Minimum efficient scale corresponds to the lowest point on the long run average cost curve.

46
Q

What is optimal plant size?

A

Optimal plant size is the size where costs are minimized and all economies of scale have been obtained.

47
Q

What is the production function?

A

The production function describes the relationship between a firm’s output and the quantities of factor inputs it employs.

48
Q

What are returns to scale?

A

Returns to scale describe how the output of a business responds to a change in factor inputs.

49
Q

What is abnormal profit?

A

Abnormal profit is profit in excess of normal profit, often maintained in a monopolistic market due to barriers to entry.

50
Q

What is equilibrium output?

A

Equilibrium output is the level of output where marginal cost equals marginal revenue.

51
Q

What is marginal profit?

A

Marginal profit is the increase in profit from selling one more unit.

52
Q

What is monopoly profit?

A

Monopoly profit occurs when a firm sets prices above the equilibrium price due to lack of competition.

53
Q

What is normal profit?

A

Normal profit is the minimum reward necessary to keep an entrepreneur in their current industry.

54
Q

Profit

A

The excess of revenue over expenses; or a positive return on an investment.

55
Q

Profit margin

A

The ratio of profit over revenue, expressed as a percentage. Mainly an indication of the ability of a company to control their operating costs.

56
Q

Profit maximisation

A

Profit maximization occurs when marginal cost = marginal revenue (MC=MR).

57
Q

Profit per unit

A

Profit per unit (or the profit margin) = AR – ATC. In markets where demand is price inelastic, a business may be able to raise price well above average cost earning a higher profit margin on each unit sold. In more competitive markets,
profit margins will be lower because demand is price elastic i.e. consumers are price sensitive.

58
Q

Retained profit

A

Profit retained by a business for its own use and which is not paid back to the company’s shareholders or paid in taxation to the government.

59
Q

Shut down price

A

In the short run the firm will continue to produce as long as total revenue covers total variable costs or put another way, so long as price per unit > or equal to average variable cost (P>AVC).

60
Q

Supernormal profit

A

A firm earns supernormal profit when its profit is above that required to keep its resources in their present use in the long run i.e. when price > average cost (P>AC).

Economics AL Flashcards (24 decks)

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