Economic Concepts/Market Influence on Business Strategies Flashcards Preview

BEC - CPA > Economic Concepts/Market Influence on Business Strategies > Flashcards

Flashcards in Economic Concepts/Market Influence on Business Strategies Deck (24):


-Few firms in the market
-Significant barriers to entry
-differentiated products
-fixed(or semi fixed) prices
-kinked demand curves


A business firm that has the ability to control the price of the product it sells

Faces a downward-sloping demand curve.


Under pure competition, strategic plans focus on:

maintaining the market share & being responsive to market conditions related to sales price.


Under monopolistic competition, strategic plans focus on:

Maintaining the market share & planning for enhanced product differentiation


Under monopoly, strategic plans focus on

Profitability from production levels that maximize profits.


Elasticity of demand or supply is:

A measure of how sensitive the demand for or supply of a product is to a change in its price.


Demand for a product is price inelastic?

An increase in price will result in an increase in total revenue.


If a demand is unit elastic, what happens to the change in price?

It will have no effect on total revenue.


Value chain analysis

-must be used in conjunction with the strategic plan of the organization
-critical to assessing the competitive advantage of a firm.
-strategic tool that assists the firm in determining how important the perceived value of the buyers is with respect to the market the firm operates in.


Vertical linkage analysis

understanding the activities of the suppliers & the buyers of the product & determining where value can be created external o the firm's operations/ Production manager's visit to the supplier's location is an example.


What factors increase the bargaining power of the suppliers?

-1 group of customers makes up a large volume of the firm's business
-buyers have low switching costs of changing products
-much information is available to the customer to compare & contrast features of all products on the market.


Surplus can only arise if there is a:

Minimum price above the equilibrium price


SCOR Model of supply chain operations, which management processes does assessing the ability of the suppliers to supply resources fall into?


"The process of planning consists of developing a way to properly balance aggregate demand & aggregate supply within the goals & objectives of the firm & plan for the necessary infrastructure.


A perfectly inelastic supply curve in a competitive market:

Exists when firms cannot vary input usage.


If an item has many similar substitutes, its price elasticity of demand will be:


*Customers can always switch to a substitute, so a change in price may affect demand substantially.


The distinguishing characteristic of the long run on the supply side is:

-All inputs are variable.

*In accounting terms, this means that in the long run all costs are variable.


Economies of Scale

The theory of economies of scale states that, as a production process gets larger, the process becomes more efficient & productivity increases.

1) Efficient utilization of capital equipment
2) Labor specialization
3) Utilization of by-products


Michael Porter - 5 Forces that affect profitability:

1)Bargaining powers of customers
2) Bargaining powers of suppliers
3) Barriers to market entry
4) Market Competitiveness
5) Existence of a substitute product.


What happens if product demand is significantly elastic?

Quantity increases proportionally more than the price declines.


Pricing policy that results in establishment of a price to external customers higher than the competitive price for a given industry?

-Collusive pricing


Patents are an example of:

Barrier to entry


In a perfectly competitive market, a monopolist tends to:

Produce substantially less but charge a higher price.


Monopolistic competition

market with many independent firms, low barriers to entry, and product differentiation


When do differentiation strategies fail?

The value of the firm's differentiation premium does not exceed its cost.