U6 mock Theme 3 Flashcards
(50 cards)
Organic Growth
firms grow by expanding production by increasing output, range or releasing a new product
Vertical intergration
where a firm merges or takes over another firm in a different stage of production
Forward - closer to consumer
Backward - closer to producer
Horizontal Intergration
two firms in the same stage of production merge
Conglomerate Intergration
2 firms with no connection e.g. British food + primark
constraints of business growth
size of market, access to finance, owner objectives, regulation
Demerger
when a large firm splits into smaller firms
reasons for demergers
growth, diseconomies of scale, focused companies, resources, finance
size of firms determined by:
EoS relative to market size - larger firms don’t suffer
DoS - large firms face higher costs
Profit Maximisation
MC = MR. difference between TR&TC. Where a firm makes greatest profit
Revenue Maximisation
MR=0. each extra unit sold generates no extra revenue
Sales maximisation
AC=AR. when firm aims to sell as much of G&S as possible without making a loss
Total Revenue
Price x Quantity sold
Average Revenue
TR/Quantity sold. Average receipt per unit
Marginal Revenue
MR=0. extra revenue earned from sale of 1 extra unit
Total Cost
Total Variable Cost + Total Fixed Cost
Total fixed cost
factors of production which don’t change
Total Variable Cost
in the long run, all factors of production can change
Average total cost
total cost / quantity provided
average fixed cost
total fixed cost / quantity
average variable cost
total variable cost / quantity
Marginal Cost
price of +1 output. △TC / △Q
Internal economies of Scale
Firm becomes larger. AC↓ as output↑
External economies of Scale
Industry gets larger
diseconomies of scale
output passes a certain point and AC starts increasing per unit produced
