firms and decisions Flashcards
(24 cards)
explicit costs
refer to actual monetary payments paid to owners of FOPs for the use of FOPs not owned by the firm
implicit costs
refer to the costs of using FOPs that does not involve a direct payment to another party
fixed costs
costs that do not vary with the level of output of the firm
variable costs
costs that vary positively with the level of output
market power
refer to a firm’s ability to influence the price of the good it sells
market concentration ratio
percentage of the total market output supplied by the largest few firms in the industry
levels of barriers to entry
refers to any obstacle or restriction faced by potential competitors which deters or restricts them from entering a market to compete with incumbent firms
normal profit
the profit that can be earned by the entrepreneur in his next best alternative business and is the minimum return the owner must make to continue his existing business instead of closing
shut down decision
short-run decision not to produce anything during a specific period because of current market conditions
long run exit decision
long run decision to leave the market
allocative efficiency
condition that exists when firms produce the combination of goods and services that is most preferred by consumers
productive efficiency
occurs when the firm is producing its output at teh lowest possible unit cost
dynamic efficiency
situation where firms are technologically progressive through investing in R&D for the purpose of process and product innovation
price discrimination
a price strategy where consumers segmented into distinct groups are being charged different prices for the same good for reasons not arising from cost differences
advertising
defined as an activity of making a product known to the public to persuade them to purchase it
product innovation
entails developing new products or improving the quality of existing goods and services, through R&D
process innovation
involves improving the method of production and making the production process more efficient
internal expansion
refers to expansion of firms by investment in new plants or new outlets or by growing their market share through advertising or through the innovation and development of new products
mergers
coming together or two or more firms to create a single new firm
acquisition
when one firm takes over another firm and completely establishes itself as the new owner
collusion
an agreement among firms to divide the market or to fix the market price to maximise economies profits
predatory pricing
refers to the attempt by a firm to undercut its competitors by lowering its price
limit pricing
the minimum price that an incumbent firm can charge in order to make a acceptable level of profit while also deterring new firms from entering the market
profit satisficing
when firms aim for minimum acceptable levels of revenue and profit
