Studied by 18 peopleBackwards vertical integration
a joining together into one firm of two or more firms where the purchaser merges with/takes over one or more of its suppliers
Conglomerate integration
a joining together into one firm of two or more firms producing unrelated products
Demerger
when a firm splits into two or more independent businesses
Divorce of ownership from control
when managers and directors of a business are different from the owners of a business (the shareholders)
Forward vertical integration
a joining together into one firm of two or more firms where the supplier merges with/takes over one or more of its buyers
Horizontal integration
a joining together of two firms in the same industry at the same stage of production
Niche market
a small segment of a larger market
Merger/integration
the joining together of two or more firms under common ownership
Not-for-profit organisations
organisations that do not aim to make a profit; rather, they use any profit or surplus they generate to support their aims (eg. a charity)
Organic or internal growth
a firm increasing its size through investment in capital equipment/an increased labour force
Private sector organisations
organisations owned by individuals or companies rather than the state
Public sector organisations
organisations owned and controlled by the state
Synergy
when two or more activities/firms put together can lead to greater outcomes than the sum of the individual parts
Vertical integration
a joining together into one firm of two or more firms in the same industry at different stages of production
Average revenue
the average receipts per unit sold // TR÷Q
Marginal revenue
the addition to total revenue of an extra unit sold // ΔTR÷ΔQ
Total revenue
the total amount of money received from the sale of any given quantity of output // AR*Q
Average product
the quantity of output per unit of factor input // total product÷level of output
Law of diminishing marginal returns
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.
Long run
the period of time when all factors of production can vary, as does the number of firms in the market, but the level of technology remains constant
Marginal product
the addition to output produced by an extra unit of input // Δtotal output÷Δlevel of inputs
Returns to scale
the change in percentage output resulting from a percentage change in all the factors of production
Short run
the period of time in which at least one factor of production is fixed, as is the number of firms in the market
Total product
the quantity of output measured in physical units produced by a given number of inputs over a period of time
Very long run
the period of time in which all factors are variable, as is the number of firms in the market, and the state of technology is variable
Average cost
the average cost of production per unit // AVC+AFC
Average fixed cost
TFC÷Q
Average variable cost
TVC÷Q
Diseconomies of scale
a rise in the long run average costs of a firm as production increases
Economic cost
the opportunity cost of an input into the production process
Economies of scale
a fall in long run average costs of production as output rises
External economies of scale
where the average cost of a firms production falls due to growth in the size of the industry in which the firm operates
Fixed costs
costs which do not vary as the level of production changes
Imputed cost
an economic cost which a firm does not pay for with money to another firm, but is the opportunity cost of the factors of production which the firm itself owns
Internal economies of scale
economies of scale which arise due to growth in the scale of production within a firm
Marginal cost
the cost of producing an extra unit of output
Minimum efficient scale (MES)
the lowest level of output at which long run average costs are minimised
Optimal level of production
the range of output over which long run average costs are lowest
Semi-variable costs
costs that contain within it a fixed and variable cost element
Total cost
the cost of producing at any given level of output // TFC+TVC
Total fixed cost
the value of the cost of production that does not vary with output
Total variable cost
the overall cost of factors of production that vary directly with output
Variable costs
costs which vary directly in proportion with output
Supernormal profit
profit above normal profit
Normal profit
the amount of profit required to keep all factors of production employed in their current use in the long run (AKA Break-Even point)
Subnormal profit
profit below normal profit
Barriers to entry
factors which make it difficult/impossible for firms to enter an industry and compete with existing producers
Barriers to exit
factors which make it difficult/impossible for firms to leave a market and cease production
Brand
a name, design, symbol or other feature that distinguishes a product from another and makes it non-homogenous
Concentration ratio
the market share of the largest firms in the industry
Homogenous goods
identical goods made by different firms
Independence
where the actions of one firm has no significant impact on any other firms in the market
Interdependence
where the actions of one firm have an impact on other firms in the market
Limit pricing
when a firm sets a low enough pricing to deter new entrants into a market
Market concentration
the degree to which the output of a market is dominated by the largest firms
Market share
the proportion of sales in a market taken by a firm/group of firms
Market structure
the characteristics of a market that determine the behaviour of firms in the market
Natural monopoly
where economies of scale are so large relative to market demand that the dominant producer will always enjoy lower costs of production than any competitors
Non-homogenous goods
goods that are similar but not identical, for example through use of branding
Perfect information
when all buyers are fully informed of all prices and quantities for sale, whilst producers have equal information to production techniques
Product differentiation
aspects of a good/service that distinguish a product from its competition, for example through packaging or marketing
Sunk costs
costs of production that are not recoverable if a firm leaves an industry
Uncertainty
a when one firm does not know how other firms will react if it changes strategy
Perfect competition
market structure where there are many buyers and sellers, freedom of entry and exit, perfect knowledge and where all firms produce a homogenous product
Price taker
a firm with no control over market price and must accept the market price if it wants to sell its product
Monopolistic competition
a market structure where a large number of small firms produce non-homogenous products and where there are no barriers to entry
Monopolist
a firm that controls all the output in a market
Monopoly
a market structure where ine firm supplies all output in the market without facing competition due to high barriers to entry
Price discrimination
charging different prices for the same good/service in different markets
Monopoly power
when firms are able to control the price they charge for their product
Monopsony
when there is only one buyer in a market
Contestable market
a market with freedom of entry and where the costs of exit are low
Hit and run competition
when firms can enter a market at low cost attracted by high profits and then leave at low cost when profits fall
Consumer sovereignty
exists when the economic system allocates resources totally according to consumer preference
Cost-plus pricing
where firms fix a price for their products by adding a fixed percentage profit margin on top of the long run average cost of production
Profit maximisation
when profit is at its highest // MR=MC
Profit satisficing
making sufficient profit to satisfy the demands of owners eg. shareholders
Revenue maximisation
when revenue is at its highest // MR=0
Sales maximisation
when the volume of sales is at its highest // AR=AC
Allocative efficiency
where the goods produced satisfy consumer preferences and maximise their welfare
Dynamic efficiency
where investment reduces the long run average cost curve
Productive efficiency
production at the lowest average cost
X-inefficiency
inefficiency arising from a lack of competition
Creative destruction
where firms produce/create new products that replace existing products on the market
Multi-plant monopolist
the sole producer in an industry has multiple places of production which can be sold off to create competition
Competitive tendering
introducing competition among private sector firms which put in bids for work contracted out by public sector firms
Contracting out
getting private sector firms to produce goods and services then provided by the state
Deregulation
the process of removing government controls from markets
Regulatory capture
when firms can influence to their advantage the market regulatory body
Nationalisation
the transfer of assets from the private to public sector
Privatisation
the transfer of assets from the public to private sector
Elasticity of demand for labour
responsiveness of the quantity demanded of labour to changes in the price of labour // Δ%Q or labour÷Δ%Wage rate
Marginal physical product
the physical addition to output of an extra unit of a variable factor of production
Marginal revenue product
the value of the physical addition to outputof an extra unit of a variable factor of production
Total physical product
the total output of a given quantity of factors of production
Unit cost of labour
the cost of employing labour per unit of output
Activity rate
the proportion of any given population actually in the workforce
Economically active
the number of workers in the workforce either in a job or unemployed
Net migration
immigration-emigration
Population of working age
size of the population between school leaving age and the state retirement age
Note
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