Th3: Definitions 2 Flashcards
Diseconomies of scale
the disadvantages that arise in large businesses that reduce efficiency and cause average costs to rise
Divorce of ownership from control
firms are owned by shareholders, who have little say in the day to day running of the business, and controlled by managers - this leads to the principal agent problem
Dynamic efficiency
efficiency in the long run - concerned with new technology and increases in productivity which causes efficiency to increase over a period of time
Economies of scale
the advantages of large scale production that enable a large business to produce at a lower average cost than a small business
External economies of scale
an advantage which arises from the growth of the industry within which the firm operates, independent of the firm itself
Fixed cost
Costs that do not vary with output
For-profit business
a business whose main aim is to make money
Game theory
used to predict the outcome of a decision made by one firm, when it has incomplete information about the other firm
Geographical mobility of labour
the ease and speed at which labour can move from one area to another
Horizontal integration
the merger of firms in the same industry at the same stage of production
Increasing returns to scale
an increase in inputs by a certain proportion will lead to an increase in output by a larger proportion
Interdependent
the action of one firm directly affects another firm
Internal economies of scale
an advantage that a firm is able to enjoy because of growth in the firm, independent of anything happening to other firms or the industry in general
Limit pricing
when firms set prices low in order to prevent new entrants - used in contestable markets
Loss
when revenue does not cover costs
