Year 13 Micro 1

Question 1

Supernormal/ economic profit

Answer 1

Profit above normal

Question 2

Average Cost

Answer 2

total cost/ output

Question 3

Average Return

Answer 3

I.e productivity
amount of output produced per unit of a variable factor of production

Question 4

Average Revenue

Answer 4

Total Revenue / quantity sold

Revenue per product sold

Question 5

Backward Vertical merger

Answer 5

Acquisition of a business which is at an earlier stage of production in the same industry

Question 6

Barriers to entry

Answer 6

Factors which make it harder/ expensive for new firms to enter a new market

Question 7

Barriers to exit

Answer 7

Factors that make it more difficult/expensive for incumbent firms to leave a market

Question 8

Capitalism

Answer 8

Economic system
Production controlled by the private sector
Operated in pursuit of profit

Question 9

Conglomerate merger

Answer 9

A merger between 2 firms no common business interest

Question 10

Constant returns to scale

Answer 10

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

Question 11

Contestable market

Answer 11

Market free from barriers to entry/exit

Question 12

Creative destruction

Answer 12

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

Question 13

Decreasing returns to scale

Answer 13

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

Question 14

Diminishing marginal returns

Answer 14

Increase In quantity or one variable input leads to a smaller increase in output than the addition of the previous unit

Question 15

Diseconomies of scale internal

Answer 15

An increase in long run average costs arising from an increase in firm’s scale of operations

Question 16

Diseconomies of scale external

Answer 16

An increase in long run average costs arising from an increase in the size of an industry

Question 17

Divorce between ownership and control

Answer 17

A scenario where the people who own a firm are not the same people that run it

Usually seen as the running of PLC by managers instead of shareholders

Question 18

EOS internal

Answer 18

Reduced long run average costs
Firms scale of operations increases

Question 19

Economies of scale (external)

Answer 19

Reduced long run average costs
Growth in industry

Question 20

External growth

Answer 20

Growth of firm
Through mergers and acquisitions (M&A)

Question 21

Fixed Costs

Answer 21

Costs that do not vary with output

Question 22

Forward vertical merger

Answer 22

Acquisition of a business that is at a later stage of production in the same industry

Question 23

Horizontal merger

Answer 23

Merger between 2 firms at the same stage of production in the same industry

Question 24

Increasing marginal returns

Answer 24

Increase in quantity of one variable input leads to a larger increase in output than the addition of the previous unit

Question 25

Increasing returns to scale

Answer 25

An increase in the quantity of all factors of production employed leads to a more than proportionate increase in output

Question 26

Innovation (product)

Answer 26

The exploitation of invention to create a product that can be marketed

Question 27

Internal/organic growth

Answer 27

Growth of a firm without merger & takeover

eg advertising

Question 28

Invention

Answer 28

Discovery of new technology through R&D

Question 29

Long run

Answer 29

Variable FOPS

Question 30

marginal cost

Answer 30

Change in total cost from making an additional unit

Change in total cost/ change in quantity sold

Question 31

Marginal returns

Answer 31

Change in total output from an addition unit of a variable factor of production

Question 32

Marginal revenue

Answer 32

Change in total revenue from an additional unit

Question 33

Minimum efficient scale of production

Answer 33

Smallest scale of production at which average cost is minimised

Lowest point on LRAC curve

Question 34

Normal profit

Answer 34

Just enough to cover opportunity cost of all FOPS being used in their current employment

Question 35

Principle agent problem

Answer 35

Scenario: managers chosen by shareholders act different: different incentives

Question 36

Process innovation

Answer 36

The exploitation of invention to create new ways of producing goods or services

Question 37

Short run

Answer 37

Fixed FOPS

Question 38

total return

Answer 38

Total output produced from a given quantity of a variable factor of production

Question 39

Zombie firm

Answer 39

Firm can continue operations without becoming insolvent but constrained by large debts that it may only be able to pay interest on.