Microeconomics

Question 1

What is the LODR?

Answer 1

When an additional factor of production, causes a relatively small increase in output

Question 2

Fixed costs

Answer 2

Vary with output

Question 3

Variable costs

Answer 3

Do not vary with output

Question 4

Short run

Answer 4

At least one factor of production is fixed - labour

Question 5

Long run

Answer 5

All factors are varied

Question 6

Internal economies of scale

Answer 6

Managerial 
Purchasing 
Marketing
Financial 
Technological

Question 7

Internal diseconomies of scale

Answer 7

Communication
Control
Coordination
Morale

Question 8

External EofS

Answer 8

Research + Development
Changes in the industry
Improved infrastructure

Question 9

External DofS

Answer 9

Regulations - government

Question 10

What is profit maximisation?

Answer 10

In the short term mc=mr

When revenue is at maximum difference from the firms costs

Question 11

Difference between normal and abnormal profits

Answer 11

Normal is the opportunity costs and abnormal is anything made above

Question 12

Why might firms want to grow?

Answer 12

Access to Eofscale 
Gain market share
Profit
Survival
Higher research

Question 13

What is horizontal integration?

Answer 13

Same industries at same stages eg car manufacturers merging with another

Question 14

What is vertical integration?

Answer 14

Same industry at different stages
Forward - closer to the consumer, manufacturers and the retailers
Backwards - car manufacturers buying supplier of raw materials

Question 15

Conglomerates

Answer 15

They have no relationship or links - mars bars

Question 16

What is a merger?

Answer 16

Combination of 2 previously separate companies coming together

Question 17

What is productive efficiency?

Answer 17

Lowest potential cost, maximum output for lowest cost

MC crosses AC at the lowest point

Question 18

What is allocative efficiency

Answer 18

Supply and demand

Marginal utility is equal to marginal cost

Question 19

What is dynamic efficiency?

Answer 19

Is the reduction in costs from new technological advances

Question 20

What is Pareto efficiency?

Answer 20

On the PPF production, no one can be better off without making someone else worse off

Question 21

What is contestability?

Answer 21

How competitive a market is and how easy it is to enter and exit

Question 22

Market structures in order

Answer 22

Perfect competition - monopolistic competition - oligopoly- monopoly

Question 23

What are the different objectives of a business?

Answer 23

Sales maximisation 
Profit m
Revenue m
Growth m
Cooperate social responsibility
utility

Question 24

Characteristics of PC

Answer 24

Homogenous goods 
Access to factors of production 
Lots of buyers and sellers
Few barriers to enter and exit 
Perfectly elastic dc
Profit maximisation SR
Perfect knowledge

Question 25

Characteristics of monopolistic

Answer 25

Lots of buyers and sellers Non price product differentiation Low barriers to entry Profit maximisation - price maker

Question 26

Characteristics of monopoly

Answer 26

``` Barriers to entry One firm Imperfect knowledge Leaders Short run Pm ```

Question 27

Characteristics of oligopoly

Answer 27

Non price competition Product differentiation A few firms High barriers to entry

Question 28

Benefits of oligopoly

Answer 28

Price stability High efficiency Dynamic efficiency Competitive

Question 29

Costs of oligopoly

Answer 29

Difficult for other firms to enter Restriction or availability of choice High barriers Carter behaviour- oil companies

Question 30

What is game theory?

Answer 30

Pay off theory, from looking at competitors and changing strategy to either keep the same or increase/decrease

Question 31

What is Nath equilibrium?

Answer 31

Can’t improve pay off independently have to look at different firms Best outcome for firms

Question 32

Government concerns over, competition, mergers and monopolies?

Answer 32

So they don’t exploit consumer service | Ensue there is competition which leads to efficiency

Question 33

Role of competition authorities?

Answer 33

Promote efficiency Prevent exploitation of consumer Avoid abuse of monopoly power

Question 34

What is privatisation?

Answer 34

When a previously owned state firm is transferred to a private owned firm

Question 35

How does privatisation increase competition?

Answer 35

Allows anyone in the same industry to compete and can be efficient

Question 36

Advantages of privatisation?

Answer 36

``` Revenue goes to the government Can compete Lower prices High efficiency More research No political interference Not influenced by short termism ```

Question 37

Disadvantages of privatisation?

Answer 37

One of payment to government Consumers welfare not a priority Natural monopolies can occur