Econ 3 - Market Influences on Business Strategies Flashcards Preview

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Price discrimination

practice of selling a product or service at different prices to different consumers when those price differences are not justified by cost differences


Examples of price discrimination

- Senior discount before 5pm
- Grocery store provides coupons to everyone
- Airline charges 175$ 14 days out and 400$ 2 days out for the same route


Domestic or global mergers/acquisitions allow an organization to:

- lower risk by diversifying into additional industries
- enter new markets
- provide possible opportunities for quick profitability in new areas
- provide opportunities to take advantage of economies of scope
- potentially lower costs along the value chain of activities
- broaden the strength of resources and capabilities


Diminishing Marginal Utility is

the marginal (additional) utility gained from successive units decreases as the number or units purchased (or consumed) increases ex. The more candy bars that a person eats, the less satisfaction derived from eating an additional candy bar


Supply chain metrics are created to measure the performance of the supply chain. If a firm developed metrics to measure things such as fill rates and on-time delivery, we would assume that they are trying to measure

customer service


A characteristic that indicates an item has a high price elasticity of demand:

the item has many similar substititues


Price Elasticity of Demand =

Change in Qty / Change in Price


Summary of Price Elasticity of Demand outcomes

Elastic >1.00


Economies of Scale are

the reduction in average total cost of production when a firm expands plant production Ex. @ 110 units, cost of production = $58K per unit. When you add 120 units more, cost of production = $50K


Diseconomies of Scale

Begin where the average total cost starts going up


How should output and price change to increase profits when marginal costs (MC) are $3 and marginal revenue (MR) is $5?

Increase output and Decrease price as long as MR > MC


If a company strives to be the low-cost provider within an industry, this means that:

the company may underprice the competition and attract the buyers in a large enough volume in order to obtain satisfactory profits


A company has a policy of frequently cutting prices to increase sales. Product demand is significantly elastic. What impact would this have on qty and price?

Qty increases proportionally more than price declines


If average household income increases, then the housing market will experience:

a rightward shift in the demand curve


Factors that create a shift in the demand curve

include income, prices of related goods, number of buyers, preferences, and expectation of future prices


Monopolistic Competition






When there is equilibrium in a monopolistically competitive industry, a firm

will operate inefficiently with price greater than marignal revenue


Collusive Pricing is

when a price to external customers is established higher than the competitive price for a given industry; competitors agree to restrict production so as to increase the price they receive for their product Ex. Cartel


Dual Pricing is

the practice of setting different prices for a product dependent on the currency used to buy it


Predatory Pricing is

meant to lower prices to such an extent as to drive competitors out of business


Transfer Pricing is

the price charged by one unit within a larger business to another unit in that business


The Average-Marginal Rule states

- if marginal > average then the average rises
- if marginal


Companies use strategic alliances and collaborative partnerships to

- open up or improve access to new markets
- learn from other companies by sharing technology and various expertise
- improve supply chain efficiency
- get into critical countries in an effective and efficient manner
- gain access to necessary resources


Differentiation strategies can be successful when:

the product is of value to the consumer and cannot be easily duplicated


Perfect competition is

characterized by a large number of sellers producing a standardized product with easy entry and exit into and out of the industry. An individual seller has no ability to influence the product price.


Economic Rate of Return on Common Stock =

[Dividends Received + (End price - Begin price)] / Beginning Price


All other things being equal, movement along a supply curve occurs if:

the price for the product increases or decreases


Explicit Cost (accounting cost) is

- easy to identify and account for
- cash outflows
- Ex. wages, utilities, rent, raw materials, other direct exp


Implicit Cost (economic cost) is

- any cost associated with not taking a certain action
- difficult to quantify
- similar to intangible cost
- Ex. time and effort an owner puts into maintenance rather than working on expansion