Definitions Flashcards
(24 cards)
Define agency problem.
Possible conflicts of interest that may result between the shareholders (principal) and the management (agent) of a firm.
Define abnormal profit.
Profit in excess of normal profit.
Also known as supernormal profit or monopoly profit. Abnormal profits may be obtained in a monopolistic market in the long run because of barriers to entry.
Define allocative efficiency.
Producing goods and services demanded by consumers at a price that reflects the marginal cost of supply.
Define Anti-competitive behaviour.
Strategies designed to limit the degree of competition inside a market and reinforce the monopoly power of established businesses.
Define asymmetric information.
Where different parties have unequal access to information in a market.
Define average cost.
Total cost per unit of output = Total cost / Output = Total cost / Quantity produced
Define average cost pricing.
Setting prices close to average cost. It is a way to maximise sales, whilst maintaining normal profits. It is sometimes known as sales maximisation.
Define average fixed cost (AFC).
Total fixed cost per unit of output = TFC / Q.
Define average revenue (AR).
Total revenue per unit of output = Price / Output.
Define variable cost.
Total variable cost per unit of output = TVC / Q.
Define backward vertical integration.
Acquiring a business operating earlier in the supply chain - e.g. A retailer buys a wholesaler, a brewer buys a hop farm.
Define barriers to entry.
Ways to prevent the profitable entry of new competitors - they may relate to differences in costs between existing and new firms. Or the result of strategic behaviour by firms including expensive marketing and advertising spending.
Define behavioural economics.
Branch of economic research that adds elements of psychology to traditional models in an attempt to better understand decision - making by investors, consumers and other economic participants.
Define bi-lateral monopoly.
Where a monopsony buyer faces a monopsony seller in a market.
Define brand extension.
Adding a new product to an existing branded group of products.
Define brand loyalty.
The degree to which people regularly buy a particular brand and refuse to, or are, reluctant to change to other brands.
Define break-even output.
The break-even price is when price = average total cost. (P = AC).
Define business ethics.
Business ethics is concerned with the social responsibility of management towards the firms major stakeholders, the environment and society in general.
Define capacity.
The amount that can be produced by a plant, company, or economy (industrial capacity) over a given period of time.
Define capital intensive.
When an industry or production process requires a relatively large amount of capital (fixed assets) or proportionately more capital than labour.
Define cartel.
An association of business or countries that collude to influence production levels and thus the marrest price of particular product.
Define churn rate.
The rate at which a company loses customers for a product or service that depends on repeat sales or regular customer usage.
Define collusion.
Collusion takes when rival companies cooperate for their mutual benefit. When two or more parties act together to influence production and/or price levels, thus preventing fair competition.
Common in an oligopoly/duopoly.
Define competition and markets authority (CMA).
The CMA has been created by unifying the Competition Commission with most functions of the office of fair trading - tackling price fixing, monopolies and unfair mergers.
