U3 Micro definitions

Question 1

Co-operative

Answer 1

a firm owned, controlled and operated by a group of users, such as the workers, for their own benefit.

Question 2

Sole trader

Answer 2

a business owned and controlled by one person

Question 3

Partnership

Answer 3

a type of business organisation where two or more people own the business

Question 4

State-owned enterprises (SOEs)

Answer 4

large organisations that are created by a country’s government to carry out commercial activities

Question 5

Organic growth/internal growth

Answer 5

business expansion by using existing resource

Question 6

Inorganic growth/external growth

Answer 6

business expansion by using resources outside of the business, such as merge and takeover

Question 7

Horizontal integration

Answer 7

when two firms merge at the same stage of the production process in the same industry

Question 8

Vertical integration

Answer 8

a merger between two firms at different production stages in the same industry.

Question 9

Forward vertical integration

Answer 9

a supplier merging with one of its buyers

Question 10

Backward vertical integration

Answer 10

a purchaser buying one of its suppliers

Question 11

Conglomerate integration

Answer 11

merging of two firms with no common interest

Question 12

Demerger

Answer 12

when a firm splits into two or more independent businesses

Question 13

Allocative efficiency

Answer 13

occurs when P=MC

Question 14

Productive efficiency

Answer 14

occurs when the business is producing at the lowest point of it LRAC

Question 15

Profit maximisation

Answer 15

occurs when the difference between total revenue and total cost is greatest. MC=MR

Question 16

Revenue maximisation

Answer 16

occurs when total revenue is highest and when marginal revenue equals zero

Question 17

Sales volume maximisation

Answer 17

occurs when the volume of sales is greatest total revenue

Question 18

Marginal revenue

Answer 18

the addition to total revenue from the sale of an extra unit

Question 19

Short-run shut down point

Answer 19

is where average revenue equals average variable costs

Question 20

Long-run shut down point

Answer 20

occurs where average revenue is below average cost

Question 21

Law of diminishing returns

Answer 21

if increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and then the average product of that variable input will decline. Diminishing returns are said to exist when this decline occurs

Question 22

Economies of scale

Answer 22

A fall in the long-run average costs of production as output rises

Question 23

Monopoly

Answer 23

market structure is when there is one single dominant supplier in the market.

Question 24

Oligopoly

Answer 24

when a few large firms dominate the market and there is interdependence between the firms, creating uncertainty; barriers to entry are likely to exist

Question 25

Perfect competition

Answer 25

when there are many consumers and producers buying and selling homogeneous products with perfect information, no barrier to entry and exit in the market

Question 26

Limit pricing

Answer 26

when firms set a low enough price to deter new entrants from coming into the market

Question 27

Price leadership

Answer 27

when one firm, the price leader, sets its own prices and other firms in the market set their prices in relationship to the price leader

Question 28

Cartel

Answer 28

a group of firms that have made a formal agreement to limit competition in the market

Question 29

Collusion

Answer 29

where firms agree to cooperate in their pricing and output policies

Question 30

Tacit collusion

Answer 30

when firms collude without any formal agreement having been reached and where there is no explicit communication between firms about strategies; an example is price leadership.

Question 31

Predatory pricing

Answer 31

a strategy used by monopoly firms or firms with a degree of monopoly power

Question 32

Contestable market

Answer 32

a market where there is freedom of entry to the industry and where costs of exit are low

Question 33

Sunk costs

Answer 33

costs which cannot be recovered when a firm leaves an industry

Question 34

Monopsony employer

Answer 34

where there is only one employer/buyer of labour in the market