3.1 Flashcards
(43 cards)
Types Of Firms
-Public Limited Companies, they are listed on the stock market
-Privately Owned Firms, limited liability
Start up,
State-owned businesses, businesses where the government owns a large part of the company
Social enterprises, businesses set up looking for profits, but profits are re-invested into social projects
Co-operatives and partnerships, employee owned firms- John Lewis
Organic growth/Internal growth
-when a business increases its own output naturally,
How does organic growth form?
-may include adding to the capital stock, through investment
-Development and launch of new capital and products
-Finding new markets (exporting into new countries
-Growing a customer base through marketing
examples of organic growth
-lego, it focuses on new product development and innovations
-Spotify, streaming revenues overtook those of music downloads in 2015, grew 19% in 2015 to 2.41 billion
-Twitter, monthly active users is now over 30 million
Backward Vertical
-when a firm integrates with another firm further back in the supply chain,
Forward Vertical
-when a firm integrates with another firm further down the supply chain
Horizontal
-two firms integrate at the same level on the supply chain
Lateral
-When firm buys another firm in a related field
-Google bought Youtube in 2006
Conglomerate
-When two firms merge when they are in unrelated fields
economies of scale
a reduction in LRAC as output increases
causes of internal economies of scale (happen within a business)
equation + acronym
Average costs = Total Costs /Quantity, total costs are rising but quantity is rising much faster
REALLY FUN MUMS TRY MAKING PIES
(Risk bearing, they can spread their risk over a larger output rate)
(financial, as a business gets larger they can negotiate a lower rate of interest with the bank)
(management, as a firm gets larger they can employ specialist managers to boost productivity)
(technical, bringing in specialist machinery, employing more workers and specialising)
(marketing, a firm can bulk buy advertising, therefore they can negotiate discounts)
(purchasing, when a firm as they grow buy raw materials in bulk, therefore they can negotiate discounts)
external economies of scale (outside the business)
-Better transport infrastructure
-component suppliers move closer
-Research and development firms move closer
causes of diseconomies of scale (an increase in LRAC as output increases)
Average costs = Total costs / quantity, total costs are rising much faster than quantity is rising
-control, becomes difficult to control, people may slack off
-communication, much harder to spread messages
-coordination, much more difficult to coordinate
-motivation, workers may become less motivated
profit equation
pi profit = total revenue - total costs
total costs
(explicit) - total fixed costs, total variable costs
(implicit) - opportunity cost
economic profit
considers both implicit and explicit costs
(total foxed cost + total variable cost + opportunity cost)
accounting profit
considers only explicit costs
normal profit
is the minimum level of profit required to keep factors of production in their current use
AR=AC
supernormal profit
supernormal profit is any profit made above normal profit
AR>AC
subnormal profit
subnormal profit is any profit made below the normal profit (a loss)
AR
profit maximisation
occurs when Marginal Cost = Marginal Revenue
benefits of profit maximisation
-re investment, they can invest into new capital, new technology and research and development
-dividends for shareholders, the owners of the company, without them there would be no company
-lower costs of production and lower prices consumers,
-rewards for entrepreneurs, a reward for the risk of starting a business
why might businesses not profit maximise
-knowledge of MC=MR, firms may not know about MC=MR
-greater scrutiny, regulators may investigate which could lead to increased costs,
-key stakeholders could be harmed
-other objectives may be more appropriate
why might businesses profit satisfice?
Profit satisficing → satisficing profit to satisfy as many key stakeholders as possible
shareholders,
managers,
consumers, harm consumers lead to a bad reputation
workers, may lead to a strike
government, investigate if they don’t like a business
environmental groups, wont like waste or pollution , protest
reputation is everything in the modern day
