theme 3 first two topics review Flashcards
Why firms remain small or why they grow to target niche markets?
Targeting niche markets is a reason why firms stay small (1 mark).
Any reason for targeting niche markets (1 mark):
e.g. a business may still be able to be profitable on a small scale by targeting a small market (possibly unreached by larger rivals)
example of niche markets, such as Fairtrade chocolate
What is profit maximisation
Profit maximisation is trying to gain the largest difference between total revenue and total cost
What is profit satisfying?
Profit satisficing is making sufficient profits to satisfy shareholders
Why might mangers pursue an objective of revenue maximisation?
Higher growth (1 mark): by increasing sales revenue the firm should increase market share (1 mark) and this could improve the status/prestige/perceived success of managers (1 mark
Sales maximisation?
Sales-related pay (1 mark): some managers may be paid on commission (1 mark), therefore by increasing total revenue they will increase their own financial remuneration (1 mark).
Explain one constraint on the organic growth of the high street bookstore in the future
Organic growth is where a firm achieves growth by increasing output of the firm via internal growth rather than mergers and takeovers (1 mark).
For example, this would mean the high-street book store opening more stores, possibly in new towns, rather than taking over a firm like Waterstone’s (1 mark).
One constraint on this growth could be access to finance
1 mark); this may be true because high-street book retailers may seem a risky option given competition from online retailers. Therefore, the high-street book store may not be able to gain a loan in order to finance buying more stores, books and sales staff needed to expand (1 mark).
Explain what is happening to the US car manufacturers total cost when marginal cost is positive but failing
When the car manufacturer’s marginal cost curve is positive but falling this means that total cost will be rising (1 mark) but at a slowing rate (1 mark). This is because producing an extra car will increase the firm’s total cost as the marginal cost of the car is positive, but as marginal cost is falling, less will be added to total cost as the next car is produced
What is meant by the term minimum efficient scale
The point at which the internal economics of scale has been reached therefore long run average cost is lower
Explain why the firm should remain in the short run but shut down in the long run?
Because it is the short run the firm can pay its variable cost because also some of its fixed cost which will lower its losses in the long run shut down immediately when average cost is greater than average revenue
organic growth
Organic growth is where a firm achieves growth by increasing output of the firm via internal growth rather than mergers and takeovers (1 mark).
sales max
Sales maximisation – definition
Graphically, it means selling at a quantity where AR = ATC, as shown (at point B.)
profit max
MR=MC
