Theme 3

Question 1

What is forward vertical integration

Answer 1

When a company acquires another company further along in the supply chain

Question 2

What is backward vertical integration

Answer 2

A company acquiring another company before themselves in the supply chain

Question 3

What is horizontal intergtation

Answer 3

When a company acquires another company within the same in industry as themselves

Question 4

What is conglomerate integration

Answer 4

The merging of two companies working in different industries

Question 5

What is the difference between average revenue and marginal revenue

Answer 5

Average revenue is the total revenue brought in by one unit. Marginal revenue is the revenue increase from every additional unit sold

Question 6

Formula for total revenue

Answer 6

Total revenue per unit X average number of units sold

Question 7

Formula for average revenue

Answer 7

Total revenue / Number of units sold

Question 8

Formula for marginal revenue

Answer 8

Change in total revenue / Change in units sold

Question 9

What is economies of scale

Answer 9

When a firms costs decrease due to output increasing

Question 10

What is diseconomies of scale

Answer 10

When a firm grows so large that its costs increase

Question 11

What is dynamic efficiency

Answer 11

When all resources are allocated efficiently over time decreasing costs

Question 12

What is X effiency

Answer 12

When average costs are higher due to there being less competition

Question 13

What is perfect competition

Answer 13

When all firms have equal information and market share does not determine price. Companies can enter and exit without barriers

Question 14

What is monopolistic competition

Answer 14

Large number of small firms compete against each others. Imperfect competition

Question 15

What is collusive behaviour

Answer 15

Secret or illegal cooperations between firms in the same market

Question 16

What is limit pricing

Answer 16

Firms setting price lower to deter new entries into the market

Question 17

What is a monopsony

Answer 17

Where there is only one buyer in the market

Question 18

What is the difference between privatisation and nationalisation

Answer 18

Privatisation is when a firm is no longer run by the government and nationalisation is where a firm becomes owned by the government

Question 19

What are the different business objectives of a firm

Answer 19

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

Question 20

Difference between normal and supernormal profits

Answer 20

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

Question 21

What is allocative efficiency

Answer 21

Where goods and services are allocated to meet the needs of consumers and society

Question 22

What is productive efficiency

Answer 22

Where goods and services are produced at the lowest possible cost

Question 23

What are the types of market structures

Answer 23

• Monopoly
• Oligopoly
• Monopolistic Competition
• Perfect Competition
• Collusion

Question 24

What is third degree price discrimination

Answer 24

When a firm charges a different price to different consumer groups. E.g. tourism

Question 25

What is derived demand

Answer 25

Demand for a good or service based on the demand for a different or similar good or service

Question 26

Factors influencing wage determination

Answer 26

• Supply and demand
• Government policies
• Bargaining power of employees