Business Economics

Question 1

What is production and what does it involve

Answer 1

Manufacturing something to sell

Involves converting inputs to outputs

Question 2

What is an input (give an example)

Answer 2

Inputs are any of the four factors of production

E.g. raw materials, labour

Question 3

What is productivity

Answer 3

A measure of how efficiently an economy or company is producing output

E.g. output per unit of input employed

Can be calculated for any one of the four factors of production

Question 4

What is labour productivity

Answer 4

Output per worker or output per hour worked

Question 5

How is labour productivity calculated

Answer 5

Labour productivity = amount of output produced in a particular time / total number of workers or total hours worked

Allows workers to be compared against other workers

Question 6

What can improvements in productivity come as

Answer 6

Better training for workers

Specialisation

Experience

Improvements in technology

Question 7

What are the advantages of specialisation

Answer 7

Specialise workers in what they’re good at

Leads to better quality and higher quantity of products for the same amount of effort overall

More efficient production

Question 8

Disadvantages of specialisation

Answer 8

Doing repetitive tasks leads to boredom

Can lead to a lack of flexibility (e g. Coal mining in the UK)

Question 9

What is specialisation

Answer 9

Means people or countries doing only the things they’re most efficient at

Question 10

What becomes vital when countries specialise and why

Answer 10

Trade becomes vital as economies have to obtain things that they no longer make for themselves

Question 11

What is the most efficient way of exchanging goods and services between countries

Answer 11

Money

Question 12

What is money

Answer 12

A medium of exchange

Something both buyers and sellers value

Question 13

What are the three functions of money

Answer 13

• measure of value
• store of value
• a standard or method of deferred payment

Question 14

What is a firm

Answer 14

Any sort of business organisation

Question 15

What is an industry

Answer 15

Where all firms provide similar goods or services

Question 16

What is the cost of production

Answer 16

The economic cost of producing good

Question 17

What is the short run

Answer 17

The period of time for atleast one factor of production to be fixed

Costs can be fixed or variable in the short rum

In the long run all costs are variable

Question 18

What is the total cost

Answer 18

All the costs involved in producing a particular level of output

Total cost = total variable costs + total fixed costs

Question 19

What is the average cost

Answer 19

Cost per unit produced

Question 20

What is the equation for average cost

Answer 20

AC = TC ÷ Q

Question 21

What is marginal cost

Answer 21

Cost of increasing output by one unit

The extra cost incurred as a result of producing the final unit of output

Question 22

Draw the short run average cost curve with labels

Answer 22

….

Question 23

What are economies of scale

Answer 23

The cost advantages of production on a large scale

Question 24

What are the two types of economies of scale

Answer 24

Internal and external economies of scale

Question 25

What are internal economies or diseconomies of scale

Answer 25

Changes within a firm

Question 26

What are examples of internal economies of scale

Answer 26

- technical economies of scale (production line cost) - purchasing economies of scale (negotiate discount with supplier) - marginal economies of scale (employ specialist managers for taking care of different areas of the business) - financial economies of scale (larger firms can often borrow more money at a lower rate of interest as banks see them as low risk) - risk bearing economies of scale (larger firms can diversify into different product areas) - marketing economies of scale (can afford more advertisement)

Question 27

What are external economies or diseconomies of scale

Answer 27

Involve changes outside a firm

Question 28

What are examples of external economies of scale

Answer 28

Local colleges offer qualifications -> reducing the firms training cost Large companies in local areas can lead to improvements In road networks or local transportation

Question 29

Examples of internal diseconomies of scale

Answer 29

Wastage + loss can increase Communication can get more difficult

Question 30

Examples of external diseconomies of scale

Answer 30

Industry becomes bigger -> price of raw materials increase as demand is greater Buying large amounts of materials may not make them less expensive per unit

Question 31

What is revenue

Answer 31

The money firms receive from selling their goods and services

Question 32

What is total revenue (TR)

Answer 32

Total amount of money received within a given time period

Question 33

What is the equation for total revenue

Answer 33

Total revenue = total quantity x price

Question 34

What is the average revenue

Answer 34

Revenue per unit sold

Question 35

What is the equation for average revenue

Answer 35

AR = TR ÷ Q

Question 36

What does a firms demand curve determine

Answer 36

Determines how revenue relates to output

Question 37

What is a price taker

Answer 37

A firms that has no power to control the price it sells at | Demand curve will be perfectly elastic

Question 38

What is a price maker

Answer 38

Where the firm has some power to set the price they sell at

Question 39

What are the objectives of firms

Answer 39

Profit maximisation -May only be an objective in the long run, sacrificing profit in the short run Growth -maximising sales or revenue in short run (could be achieved by setting prices lower) Alternate objectives - use sustainable resources to protect environment - use suppliers in their region to support local business

Question 40

What are the properties of perfectly competitive markets

Answer 40

Where there is an infinite number of suppliers and consumers Small enough so they have no 'market power' Consumers have perfect information -every decision is well informed Producers have perfect information -no firm has 'secret' low-cost production methods Homogeneous goods (means no branding) No barriers to entry or exit Firms are profit maximisers

Question 41

Define homogeneous

Answer 41

Products are identical This also means no brands

Question 42

What does it mean when there are low barriers of entry and profits are high

Answer 42

New firms will enter the market

Question 43

What are the properties of less competitive markets

Answer 43

High barriers of entry Therefore profits and prices will stay high as new firms can't enter the market and bring them down

Question 44

What are the factors that influence the structure of markets

Answer 44

Product differentiation Level of barriers of entry Number of firms

Question 45

What is a monopoly

Answer 45

A market containing a single seller

Question 46

What is a pure monopoly

Answer 46

A market with a single supplier

Question 47

What is monopoly power

Answer 47

Markets with more than 1 seller have it Act as price makers by controlling supply to influence the goods price

Question 48

What are the factors that can result in monopoly power

Answer 48

Barriers to entry Advertising and product differentiation Few competitors in the market

Question 49

What can barriers of entry be used for

Answer 49

Maintaining and creating monopolies

Question 50

What is a barrier to entry

Answer 50

Any obstacle thst makes it impossible or unattractive for a new firm to enter a market

Question 51

What does concentration ratios show

Answer 51

How dominant the big firms in a market wre

Question 52

What are concentrated markets

Answer 52

Industries dominated by just a few companies, even though there may be many firms in that industry overall

Question 53

How do you calculate the concentration ratio

Answer 53

E.g. 3 firms control 90% of the market, while another 40 firms control the other 10% 3 firm concentration ratio = 90% 45 Mil total in market If the firms had revenues of 15m, 9m and 7m respectively 3 firm concentration ratio = (15+9+7)/45 x100 = 68.9%

Question 54

What are the potential benefits from monopolies

Answer 54

Gain an advantage from economies of scale Security in the market, can have a long term view with innovation Market is dominated by few large firms, but they still compete

Question 55

What are the disadvantages of monopolies

Answer 55

Restrict consumer choice Fewer incentives to innovate No inventive to cut costs as they're price makers Use its powers to exploit suppliers