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Economics - Theme 3 > Theme 3 - Test 23/05/19 > Flashcards

Theme 3 - Test 23/05/19 Flashcards

1
Q

What are some of the Objectives of firms?

A 
– Maximise profits
– survival
– increase market share 
– Reduce costs
- Operate ethically
– Growth
– innovation
– Physical expansion of premises
– recruitment of excellent staff
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2
Q

Why may a firm seek to maximise profits?

A

In order to give better dividends to shareholders
To make company shares more valuable
Improve expansion

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3
Q

Why might a firm want to maximise revenue?

A

– In order to break even

– Pay of staff in order to keep the business running

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4
Q

Why might a business want to sell seats (football stadium)?

A
  • Important for cash flow
  • Large Customer base
  • Loyal customers + extra spending
  • Price competitive
  • Reputation
  • Market Share
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5
Q

Why Profit maximise?

A
  • Like Money greed
  • Dividend Payments
  • Retained Profits ( last years profit kept back for investment next year)
  • Allows market domination
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6
Q

Why maximise sales?

A
  • Sell more physical products = more market share
  • Ensures all unsold stock gets sold (especially ‘out dates’ products)
    –Greater good
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7
Q

In Economics what costs do you have?

A
  • Capital Costs

- Labour Costs

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8
Q

What is meant by Fixed Costs?

A

Never change according to Output

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9
Q

What is meant by Variable Costs?

A

Directly linked to output and change accordingly

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10
Q

What is meant by Total Costs? TC

A

FC + VC ( Fixed Costs + Variable Costs)

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11
Q

What is meant by Average Costs?

A

Total Costs / Output

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12
Q

What is meant by Marginal Costs?

A

The cost of making the next product

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13
Q

In the short term is capital Fixed or Variable?

A

Fixed

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14
Q

In the short term is Labou Fixed and Capital?

A

Labour is Variable

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15
Q

In the long term is Capital Fixed or Variable?

A

Variable

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16
Q

In the long term is Labour Fixed or Variable?

A

Variable

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17
Q

What is the Total Costs Equation?

A

Total Variable Cost + Total Fixed Costs

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18
Q

What is the Average Fixed Cost Equation?

A

Fixed cost / Total Variable Cost

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19
Q

What is the Average Total Cost Equation?

A

Total Cost / Number of how many products you make

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20
Q

What do you think will happen to average costs over time?

A

Average costs will rise because they are producing more output, might cause greater inefficiency, Cost for extra labour is more, so is capital

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21
Q

What is meant by Marginal Cost?

A

The cost of an additional one

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22
Q

What does AC mean?

A

Average Cost

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23
Q

What does MC mean?

A

Marginal Cost

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24
Q

What does AVC mean?

A

Average Variable Cost

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25
Q

Where does MC cut AC?

A

At the lowest point of AC

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26
Q

What are we predominantly talking about when it comes to labour?

A

Talking about labour

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27
Q

What point is Profit maximisation?

A

MC = MR

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28
Q

What does MC = MR mean?

A

Profit Maximisation

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29
Q

What is meant by Marginal Revenue?

A

The revenue from selling the next one

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30
Q

What is the Total Revenue Equation?

A

Price x Quantity Sold

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31
Q

What is the Average Revenue Equation?

A

Total Revenue / Output

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32
Q

What is the Profits equation?

A

Total Revenue - Total Costs

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33
Q

What are the main economic objectives a firm may have?

A
  • Maximise Profits
  • Minimise Costs
  • Sales Maximisation
  • Revenue Maximisation
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34
Q

What is the Average Total Costs (ATC) Equation?

A

Total Costs (TC) / Number of products made

35
Q

What is the Marginal Cost (MC) Equation?

A

New VC - Previous VC

36
Q

Average costs [……..] as you increase output in the short term.

A

Fall

37
Q

There is Diminishing Productivity as you add….

A

More workers

38
Q

Average Costs fall as you increase output in the short term, eventually the average costs will then….

A

Start rising again

39
Q

In the Long run are Labour and Capital Variable?

A

YES

40
Q

Is Labour Variable in the short term?

A

Yes

41
Q

What is meant by Economies of Scale?

A

Are the cost advantages that a firm can exploit by expanding their scale of production.

42
Q

What is the effect of Economies of Scale?

A

Reduces the average unit costs of production

43
Q

What is meant by Technical Economies of Scale?

A

Best technology to produce more

44
Q

What is meant by Purchasing Economies Of Scale?

A

Negotiating discounts

45
Q

What is meant by Specialisation of Labour?

A

Productive specialist staff

46
Q

What is meant by Managerial Economies of Scale?

A

Specialist Functional Managers

47
Q

What is meant by Financial Economies of Scale?

A

Negotiating lower rates of interest

48
Q

What is meant by Risk Bearing Economies of Scale?

A

Benefits of diversifying into new products

49
Q

What is meant by Diseconomies of Scale?

A

When the average costs increase again.

50
Q

What can cause diseconomies of Scale?

A
  • Miscommunication
  • Inefficiencies
  • Too many staff
  • Poor Leadership
  • Overworking
51
Q

How to prevent Diseconomies of Scale?

A
  • Prevent de-motivation use alternating staff jobs
  • Invest in new machinery
  • Miscommunication (try and and create more direct links from production managers to general managers)
  • Bonuses and rewards
52
Q

What is meant by External Economies of Scale?

A

When the industry experiences falling costs all together

53
Q

Examples of External Economies of Scale?

A
  • Development do research and development of facilities in local universities
  • Spending by a local authority on improving the transport network
54
Q

Firms maximise when marginal revenue = ????

A

0

55
Q

What is meant by the term price takers?

A

Firms who are dictated to by the market

56
Q

What is meant by the term Price Makers?

A

Firms who can set their own prices

57
Q

Is the average revenue and the Demand curve the same thing?

A

Yes

58
Q

What is the Total Revenue Equation?

A

Price x Quantity

59
Q

What is the Total Costs Equation?

A

Cost x Quantity

60
Q

What is the Profit Equation?

A

Total Revenue - Total Costs

61
Q

What can Supernormal Profit also be called?

A

Abnormal Profit

62
Q

Identify 2 reasons why a market price may fall (and the firm must follow it)?

A
  • Competitors will change their prices
  • Declining Market share
  • Losing customers
63
Q

When does a firm keep selling until?

A

The marginal Revenue and Marginal Costs intersect

64
Q

When you shift the marginal cost do you also have to shift the average cost?

A

Yes

65
Q

What is Fixed Costs on a graph?

A

Average Costs (AC)

66
Q

What is Variable Cost on a graph?

A

Marginal Cost (MC)

67
Q

How can a business grow Organically?

A
  • Make new products
  • making existing customers buy more
  • Advertising
68
Q

What is meant by External Growth?

A

Growing a business by either merging or taking over another company

69
Q

What is meant by the term merger?

A

Two firms agree to join together

70
Q

What is meant by the term Takeover/Acquisition?

A

When one firm goes and buys another firm on the Stock Exchange

71
Q

What is meant by a Vertical Merger?

A

Backward and Forward (eg, brewery buys a chain of pubs)

72
Q

Advantages of Mergers?

A
  • Economies of scale – bigger firms more efficient
  • More profit enables more research and development.
  • Struggling firms can benefit from new management.
73
Q

Disadvantages of Mergers?

A
  • Increased market share can lead to monopoly power and higher prices for consumers
  • A larger firm may experience diseconomies of scale – e.g. harder to communicate and coordinate.
74
Q

What is meant by the term Demergers?

A

The separation of a large company into two or more smaller firms

75
Q

What are some of the reasons to demerge?

A

– Focusing on core business to streamline costs and improve profit margins
– reducing the risk of diseconomies of scale, and diseconomies of scope by reducing the range of function in a business, lower management costs
– Raise money from asset sales and return to shareholders
– Defensive tactic to avoid attention of competition authorities investigate possible monopoly power
– Both firms have different objectives
– increase share price when they split
– disappointed at the success of original merger

76
Q

What is meant by the term conglomerate?

A

Is a merger of firms that are involved in economically unrelated business activities

77
Q

What are some of the reasons for compliments?

A

– Better sales revenue and cash flow
– cross selling products
– Investment opportunities

78
Q

What are some of the reasons against conglomerates?

A

– No experience in other industry
– focus shift in business operations
– how to manage cultural values

79
Q

What is meant by the term private sector?

A

Firms which are owned by shareholders and generally aim to make profit

80
Q

What is meant by the term public sector?

A

Firms owned, funded and ran by the government on behalf of the public

81
Q

What is meant by the term third sector?

A

The not-for-profit, social enterprises and charities

82
Q

Why are private-sector firms more likely to help grow the economy?

A

– Create jobs
– increases trade
– provide goods and services to the poor
– generating tax revenue to fund basic public services

83
Q

Why are private sector found is more likely to improve the balance of payments?

A

Private firms will export mobile phone prices, more accessible

84
Q

Why are private sector phone is more likely to improve the unemployment figures?

A

Produce more so in ploy more people to help increase firms supply

Economics - Theme 3 (8 decks)

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