3.1 Business growth Flashcards
(28 cards)
What are the main assumptions of perfect competition?
- many (infinite) buyers and sellers
- perfect entry/exit from the market
- homogenous products (the products are the same in every way - no differences based on quality or branding)
- perfect knowledge (both consumers and producers know the price)
What is the importance of revenue?
-They affect the profitability of a business
-When demand is price inelastic, a fall in price causes a fall in total revenue.
-The elasticity of demand (the slope of the AR curve) has an effect on the profit margins of businesses in competitive and concentrated markets.
What shifts average revenue?
- incomes
-population
-price of substitutes and complements
-successful advertising by the business - quality of the products
what are variable costs?
- costs which vary with output (the quantity produced)
what are fixed costs?
Costs which do not vary with output
how do you calculate total costs?
total costs = fixed costs + variable costs
What are some examples of fixed costs?
Rent, salaried workers, interest payments on loans, insurance
What are some examples of variable costs?
Raw materials, wages of staff paid by hour (and therefore related to output)
What are sunk costs?
Costs which cannot be recovered when a firm leaves the market
How do you calculate average costs?
Total cost/quantity
How do you calculate variable costs?
Total variable costs/quantity
How do you calculate average fixed costs?
Total fixed costs/quantity
How do you calculate marginal cost?
change in total cost/change in output
When does diminishing marginal returns?
When marginal product(output) starts to fall. This means that increase, but at a decreasing rate, as more workers are employed.
What is the relationship between AC and MC?
If marginal cost is less than the average cost, it pulls the the average down.
If marginal cost is greater than average cost (MC > AC). It pushes the average up.
What are stakeholders?
Anyone with an interest in a company’s outcomes. (Parties with diverse interests in the company’s operations, reputation and outcomes)
What are shareholders?
they own a share of a company’s stock, which represents ownership in the company.
When does profit maximisation occur?
Occurs when marginal revenue = marginal cost
When does revenue maximisation occur?
When marginal revenue = 0
What does sales growth maximisation occur?
Generating the highest possible level of sales within a given period.
Occurs when price per unit = average cost
What is satisficing objectives?
When the owners of a buisness (shareholders) set a minimum acceptable level of achievement for managers. Instead of doing their best, the managers just aim to meet these objectives. reduces productivity.
If there is an increase/decrease in revenue does it shift AR,MR or both?
both
If there is an increase/decrease in fixed costs, what does it shift?
AC
If there is an increase/decrease in variable costs what does it shift?
both MC and AC
