Year 13 Micro 1 Flashcards
Supernormal/ economic profit
Profit above normal
Average Cost
total cost/ output
Average Return
I.e productivity
amount of output produced per unit of a variable factor of production
Average Revenue
Total Revenue / quantity sold
Revenue per product sold
Backward Vertical merger
Acquisition of a business which is at an earlier stage of production in the same industry
Barriers to entry
Factors which make it harder/ expensive for new firms to enter a new market
Barriers to exit
Factors that make it more difficult/expensive for incumbent firms to leave a market
Capitalism
Economic system
Production controlled by the private sector
Operated in pursuit of profit
Conglomerate merger
A merger between 2 firms no common business interest
Constant returns to scale
An increase in the quality of all factors of production employed leads to a proportionate increase In output
10% more factor inputs
10% increase in output
Contestable market
Market free from barriers to entry/exit
Creative destruction
The process: barriers to entry are removed from a market
usually due to technological advancements
Allowing new firms to replace older ones
Creating new markets out of nothing
Decreasing returns to scale
Situation: increase in quantity of all factors of production employed leads to a less than proportionate decrease in output
10% more inputs
5% less output
Diminishing marginal returns
Increase In quantity or one variable input leads to a smaller increase in output than the addition of the previous unit
Diseconomies of scale internal
An increase in long run average costs arising from an increase in firm’s scale of operations