Theme 3: Business Behaviour and the Labour Market Flashcards
Average cost/average
total cost (AC/ATC)
The cost of production per unit
total costs/
quantity produced
Average revenue (AR)
The price each unit is sold for
TR/
quantity sold
Bilateral monopoly
Where there is only one buyer and one seller in the market
Cartels
A formal collusive agreement where firms enter into an agreement to
mutually set prices
Competition policy
Government action to increase competition in markets
Conglomerate
integration
The merger of firms with no common connection
Contestable market
When there is the threat of new entrants into the market, forcing firms
to be efficient
Deregulation
The removal of legal barriers to allow private enterprises to compete
in a previously protected market
Derived demand
The demand for one good is linked to the demand for a related good
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
Economies of scale
The advantages of large scale production that enable a large business to produce at a lower average cost than a smaller business
Fixed cost
Costs which do not vary with output
Game theory
Used to predict the outcome of a decision made by one firm, when it has incomplete information about the other firm
Horizontal integration
The merger of firms in the same industry at the same stage of production
Limit pricing
When firms set prices low in order to prevent new entrants; used in
contestable markets
Loss
When revenue does not cover costs
Minimum efficient
scale
The lowest level of output necessary to fully exploit economies of
scale
Monopolistic
competition
Where there are a large number of buyers and sellers who are
relatively small and act independently, selling non-homogeneous
goods
Monopoly
Monopsony
single seller in the market
single buyer in the market
Non-price competition
When firms compete on factors other than price, for example customer service or quality; they aim to increase the loyalty to the
brand which makes demand more inelastic
Organic growth
Where firms grow by increasing their output
Overt collusion
Collusion where firms come to a formal agreement, for example a
cartel
Perfect competition
A market with many buyers and sellers selling homogenous goods
with perfect information and freedom of entry and exit
Perfectly contestable
market
A market with no barriers to entry, where a new firm can easily enter
and compete against incumbent firms completely equally
