Theme 3 Flashcards
What does principle agent problem mean?
When there is a conflict in priorities between the owner of an asset and the person who has control of the asset
What does labour costs mean?
The total expenditure borne by employers for employing staff
What does capital costs mean?
The one-time expenses paid for things used in the production of goods or service
What does organic growth mean?
Where a business grows from within (natural growth)
How could a business grows from by organic growth?
- expanding the product range
- number of business units
- location
- advertisement
- better customer service
- extend opening hours
What does derived demand mean?
Demand that comes from the demand for something else
What does marginal product mean?
The change in output as a result of one additional unit of input being added to production
What does marginal product of labour mean?
The additional output produced by hiring one more unit of labor
What does marginal revenue mean?
The additional revenue a business earns by selling one more unit of a product or service
How to you calculate marginal revenue product of labour?
Marginal product of labour x marginal revenue
What does profit maximisation mean?
Marginal cost of employing extra labour equals marginal revenue product of labour (MC = MR)
What does demand for labour mean?
The quantity of labor that employers are willing and able to hire at a given wage rate
What are the problems with profit maximisation?
- measuring labour productivity can be difficult
- collaborative work makes it difficult to establish the productivity of individual workers
What are some factors influencing the demand for labour?
- wage rate
- demand for products
- productivity of labour
- profitability of firms
- substitutes
- number of buyers of labour
What does monopsonist mean?
a single buyer in a market, holding significant power to influence prices and quantities
What does supply of labour mean?
The total number of hours that workers are willing and able to offer for work at a given wage rate
What are some factors influencing the supply of labour?
- wages
- size of working population
- migration
- preferences
- net advantages of working
- work and leisure
What does the backward bending supply curve mean?
That after a certain wage point, an increase in wages leads to a decrease in the quantity of labor supplied
What does income effect mean?
As wages increases, work less hours
What does substitution effect mean?
As wages increases, work more hours
What does elastic labour demand mean?
As small change in wages leads to a proportionally larger change in the quantity of labor demanded
What does elastic labour supply mean?
A small change in wages leading to a relatively large change in the amount of labor supplied
What does inelastic labour demand mean?
A big change in wage rates will lead to a smaller change in employment levels
What does inelastic labour supply mean?
The quantity of labor supplied is relatively unresponsive to changes in the wage rate
What are some advantages of organic growth?
- not as risky
- cheaper
- retain control of the business
What are some disadvantages of organic growth?
- longer to grow
- competitors can copy you
What does external growth mean?
A company’s expansion through acquiring other businesses or forming partnerships
What does horizontal growth mean?
Expanding the product or service to new markets
What does backwards vertical growth mean?
When the business takes over a company at an earlier stage in the production process
What does forwards vertical growth mean?
When a business takes over a company at a later stage in the production process
What does diversification mean?
Integration with a totally unrelated industry
What are some advantages to backward vertical growth?
- guarantee supplies
- can also supply to other businesses (profit)
What are some disadvantages to backward vertical growth?
- expensive
What are some advantages to forward vertical growth?
- guarantee somewhere to sell
- closer to customers
What are some disadvantages to forward vertical growth?
- expensive
