Business Vocabulary

Question 0

Producer Surplus

Answer 0

Measure of producer welfare: the surplus of market price is received over the minimum price the producer would be prepared to accept.

Question 1

Consumer Surplus

Answer 1

Measure of consumer welfare: the maximum price a consumer is willing to pay for a good minus the market price.

Question 2

Productive Efficiency:

Answer 2

Where goods are produced at the minimum possible average cost.

Question 3

Allocative efficiency

Answer 3

Where resources are used to produce what consumers actually want to buy I.e where resources are allocated such that no consumer could be made better off without another consumer becoming worse off.

Question 4

Dynamic efficiency

Answer 4

Where development of new products and harnessing of new technology is rapid over time.

Question 5

X-inefficiency

Answer 5

The rise in average costs when a firm with monopoly power gets complacent about facing limited competition in a market.

Question 6

Fixed cost

Answer 6

A cost which is independent of output in the short run.

Question 7

Variable cost

Answer 7

A cost which is related to output produced in the short run.

Question 8

Marginal cost

Answer 8

The addition to total cost from producing an extra unit of output.

Question 9

Law of diminishing (marginal) returns

Answer 9

The fall in marginal product as additional units of the variable factor of production are added to the fixed factors.

Question 10

Average cost

Answer 10

The cost per unit output.

Question 11

Average revenue

Answer 11

The revenue per unit of output.

Question 12

Marginal revenue

Answer 12

The addition to total revenue from producing an extra unit of output.

Question 13

Normal profit

Answer 13

The minimum (accounting) profit which the entrepreneur needs to stay In long term production.

Question 14

Super normal profit

Answer 14

Profit in excess of normal profit.

Question 15

Short run

Answer 15

Period of time where at least one factor of production is fixed.

Question 16

Long run

Answer 16

Period of time when all factors of production are variable.

Question 17

Minimum efficient scale (MES)

Answer 17

The lowest output at which a firm can produce at the lowest unit costs possible for the given technology.

Question 18

Profit maximisation

Answer 18

Price and output are chosen to maximise supernormal profit

Question 19

Revenue maximisation

Answer 19

Price and output are chosen to maximise total revenue.

Question 20

Sales maximisation

Answer 20

Price and output are chosen to maximise sales volume (subject to earning a minimum profit).

Question 21

Satisficing

Answer 21

Managers aim to make a satisfactory profit (anything at or above minimum level).

Question 22

Perfect competition

Answer 22

Market structure where there are very many (an infinite number of) buyers and sellers such that no individual can buy or sell at any price other than the ‘going price’.

Question 23

Concentration ratio

Answer 23

The market share of the largest (specified number of) firms in an industry.

Question 24

Oligopoly

Answer 24

A market dominated by a few firms

Question 25

Price discrimination

Answer 25

Where a firms sells identical products at different prices to different buyers for reasons other than differing cost of supply.

Question 26

Kinked demand curve

Answer 26

Demand curve facing an oligopolist which is relatively price elastic if price is raised but relatively price inelastic if price is reduced.

Question 27

Game theory

Answer 27

Theories where one participants behaviour is directly dependant on another's behaviour.

Question 28

Collusion

Answer 28

Where firms agree not to compete on price

Question 29

Price leadership

Answer 29

When a dominant firm sets a price for rivals to copy through an implicit collusive understanding.

Question 30

Pride wars

Answer 30

A short run strategy where a firm undercuts rivals on price to below cost which leads to retaliation (initial move called predatory pricing)

Question 31

Limit pricing

Answer 31

Where existing firms attempt to prevent new entry by pricing low so that new entrants will not make normal profits.

Question 32

Cost plus pricing

Answer 32

Where firms set price at average cost plus a profit margin, without explicit reference to estimated demand curve.

Question 33

Non price competition

Answer 33

Where firms attempt to make more profit without cutting price.

Question 34

Product differentiation

Answer 34

Form of non-price competition where firms encourage brand loyalty by marketing products which are distinctive from their competitors.

Question 35

Innovation

Answer 35

The ability to turn and invention into a marketable product or production process.

Question 36

Contestable Market

Answer 36

An industry where there are no significant barriers to entry or exit (no sunk costs)

Question 37

Sunk cost

Answer 37

A cost which cannot be recouped on exiting the industry.

Question 38

Internal growth

Answer 38

Self-finance growth of a company

Question 39

Merger

Answer 39

Joining of two previously separate firms into one.