Econ 3 - Market Influences on Business Strategies Flashcards Preview

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Flashcards in Econ 3 - Market Influences on Business Strategies Deck (51)
1

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

2

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

3

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

4

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

5

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

6

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

the item has many similar substititues

7

Price Elasticity of Demand =

Change in Qty / Change in Price

8

Summary of Price Elasticity of Demand outcomes

Elastic >1.00
Inelastic

9

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

10

Diseconomies of Scale

Begin where the average total cost starts going up

11

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

12

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

13

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

14

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

a rightward shift in the demand curve

15

Factors that create a shift in the demand curve

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

16

Monopolistic Competition

[PLACEHOLDER]

17

Oligolopy

[PLACEHOLDER]

18

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

will operate inefficiently with price greater than marignal revenue

19

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

20

Dual Pricing is

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

21

Predatory Pricing is

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

22

Transfer Pricing is

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

23

The Average-Marginal Rule states

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

24

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

25

Differentiation strategies can be successful when:

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

26

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.

27

Economic Rate of Return on Common Stock =

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

28

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

the price for the product increases or decreases

29

Explicit Cost (accounting cost) is

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

30

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

31

When implicit costs are greater than zero and economic profits in an industry equal zero:

accounting profits will be > 0.

Economic profit is generally lower (never higher) than accounting profit due to the fact that implicit costs are included in the calculation of in economic profits.

32

A best-cost producer can gain a competitive advantage:

by delivering a superior product at a lower price than the competition. i.e. give the buyer more value for their money

33

Income and employment tend toward an equilibrium level where:

aggregate supply = aggregate demand AND intended savings = intended investment

34

Law of Diminishing Returns states

as increasing larger amount of variable inputs are combined with fixed inputs, at some point the marginal, physical product will begin to increase at a decreasing rate and eventually the marginal physical product will decline

35

The best concept to understand oligopoly behavior is

the game theory model

36

The phrase, “The use of a network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products,” is one possible definition for:

Supply Chain Management

37

The Law of Demand states

there is an inverse relationship between the price of a product and the quantity demanded of that product Ex. higher price, lower qty demanded

38

A niche (focus) strategy based on differentiation can be attractive if

the market has distinctive buyer groups who have specific needs in product attributes or have different uses for the product.

39

Mutual interdependence is

each firm in an oligopolistic industry must consider the reactions of its rivals when it makes decision concerning how to price its product

40

Demand Curve reflects

the impact that price has on the amount a product purchased

41

Similarity between Perfectly competitive industry and Monopolistically competitive industry:

no significant barriers to entry in either market structure

42

A city ordinance that freezes rent prices may cause

demand for rental space to exceed supply

43

If the price for a product increases and the demand curve for a second product shifts to the left, then:

the products are complementary goods

44

In supply chain mgmt, key difference between traditional manufacturing and demand mgmt is

that products are pulled through the production process in response to specific customer needs

45

If consumer income increases and as a result the demand for housing increases, we can conclude that housing is

a normal good

46

A profit-maximizing firm operating in a competitive market in the short run will increase output:

as long as marginal revenue is greater than marginal costs

47

Economic Profit =

Total Revenue - Total Explicit Costs - Total Implicit Costs

48

Key Objectives of Supply Chain Mgmt

- Reduce supplier base while developing supplier relationships
- Standardize parts to reduce inventory levels
- Improve communications at levels of the organization to create an uninterrupted flow of materials and products

49

Suppliers have more power when"

- the product they are supplying is differentiated
- substitutes are not available
- few companies product the same product
- the purchasing industry is not an important customer to the supplying industry

50

In monopolistic competition, the goal of product differentiation and advertising is to:

make the firm's demand curve less elastic so that consumers are less responsive to changes in price

51

Technology is constantly changing. An improvement in production techniques that allows for a larger output for a given amount of inputs would result in:

a shift of the supply curve to the right resulting in more of the product being offered at each price