BEC_ECON Flashcards
What are the main features of a monopolistic competition?
Numerous firms with differentiated products.
Ease of entry-few barriers
Firms exert some influence over price and market.
Non-price competion is frequent and critical.
What are the features of a TROUGH
- Profits are likely to be at the lowest level.
- Significant excess production capacity…this would lead them to lower workforce and cost cutting.
What would be the demand curve be for a a firm that has the ability to control the price?
Downward slopping demand curve.
When does a firm experience a horizon demand curve?
Only in PERFECTLY COMPETITIVE markets, where the firms have to be price takers. So have no control over pricing.
What is the relationship between actual output and potential output in a recession?
Potential Output > Expected Output
What are Michael Potter’s five forces that affect profitability?
- Barriers to entry
- Market competitiveness (intensity of competition)
- Existence of Substitute Products
- Bargaining power of customers
- Bargaining power of the suppliers
In what situations would competition have an even stronger force impacting the profitability of a firm?
In terms of costs when does a firm have competitive advantage?
If the TOTAL COSTS of the firm is less that those of the rivals.
If two subsidieries (owned by a third company) in a transfer price situation has two different tax rates, what is the optimum pricing strategy?
The subsidiary with high tax rate should sell the product to the subsidiary with the low tax rate at the highest price possible. This maximizes profit for both the two subsidiaries and the third company.
In an equity carve out what kind of ownership does the parent company typically receive?
The parent receives a CONTROLLING INTEREST, not a MINORITY INTEREST.
What is a DIAGONAL COMBINITION?
When an acqusition of another business provides support for one of the acquirer’s operations? (e.g., a fishing company acquires a shipping company to lower the cost of shipping).
What is a circular BUSINESS COMBINATION?
Merger of different types of businesses with REMOTE CONNECTIONS UNDER A SINGLE MANAGEMENT.
What is Tender Offer?
A company makes a direct offer to the shareholders to buy their stocks at a specified price.
What is Purchase of Assets?
When the acquiring company purchases a portion or all of the selling company’s assets. This may result in dissolution of the selling company.
What is Divestiture? What are different types of diverstitures?
Divesture involves partial or full disposal of a component of a business. Three different types of divestiture are:
Sell-off
Spin-off, and
Equity Carve-out
