Theme 3 Flashcards
What is forward vertical integration
When a company acquires another company further along in the supply chain
What is backward vertical integration
A company acquiring another company before themselves in the supply chain
What is horizontal intergtation
When a company acquires another company within the same in industry as themselves
What is conglomerate integration
The merging of two companies working in different industries
What is the difference between average revenue and marginal revenue
Average revenue is the total revenue brought in by one unit. Marginal revenue is the revenue increase from every additional unit sold
Formula for total revenue
Total revenue per unit X average number of units sold
Formula for average revenue
Total revenue / Number of units sold
Formula for marginal revenue
Change in total revenue / Change in units sold
What is economies of scale
When a firms costs decrease due to output increasing
What is diseconomies of scale
When a firm grows so large that its costs increase
What is dynamic efficiency
When all resources are allocated efficiently over time decreasing costs
What is X effiency
When average costs are higher due to there being less competition
What is perfect competition
When all firms have equal information and market share does not determine price. Companies can enter and exit without barriers
What is monopolistic competition
Large number of small firms compete against each others. Imperfect competition
What is collusive behaviour
Secret or illegal cooperations between firms in the same market
What is limit pricing
Firms setting price lower to deter new entries into the market
What is a monopsony
Where there is only one buyer in the market
What is the difference between privatisation and nationalisation
Privatisation is when a firm is no longer run by the government and nationalisation is where a firm becomes owned by the government
What are the different business objectives of a firm
Profit maximisation - firms focus on generating the greatest profit where marginal cost = marginal revenue
Sales maximisation - firms focus on supplying the greatest amount of sales where average revenue = average cost
Revenue maximisation - focusing on generating revenue where marginal revenue = 0
Difference between normal and supernormal profits
Normal profits is where a firm takes enough revenue to cover its expenses. Supernormal is where they take more revenue then its costs in expenses. This profit can be used flexibly within the firm
What is allocative efficiency
Where goods and services are allocated to meet the needs of consumers and society
What is productive efficiency
Where goods and services are produced at the lowest possible cost
What are the types of market structures
- Monopoly
- Oligopoly
- Monopolistic Competition
- Perfect Competition
- Collusion
What is third degree price discrimination
When a firm charges a different price to different consumer groups. E.g. tourism
What is derived demand
Demand for a good or service based on the demand for a different or similar good or service
Factors influencing wage determination
- Supply and demand
- Government policies
- Bargaining power of employees
