a joining together into one firm of two or more firms where the purchaser merges with/takes over one or more of its suppliers
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Conglomerate integration
a joining together into one firm of two or more firms producing unrelated products
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Demerger
when a firm splits into two or more independent businesses
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Divorce of ownership from control
when managers and directors of a business are different from the owners of a business (the shareholders)
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Forward vertical integration
a joining together into one firm of two or more firms where the supplier merges with/takes over one or more of its buyers
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Horizontal integration
a joining together of two firms in the same industry at the same stage of production
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Niche market
a small segment of a larger market
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Merger/integration
the joining together of two or more firms under common ownership
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Not-for-profit organisations
organisations that do not aim to make a profit; rather, they use any profit or surplus they generate to support their aims (eg. a charity)
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Organic or internal growth
a firm increasing its size through investment in capital equipment/an increased labour force
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Private sector organisations
organisations owned by individuals or companies rather than the state
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Public sector organisations
organisations owned and controlled by the state
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Synergy
when two or more activities/firms put together can lead to greater outcomes than the sum of the individual parts
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Vertical integration
a joining together into one firm of two or more firms in the same industry at different stages of production
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Average revenue
the average receipts per unit sold // TR÷Q
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Marginal revenue
the addition to total revenue of an extra unit sold // ΔTR÷ΔQ
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Total revenue
the total amount of money received from the sale of any given quantity of output // AR*Q
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Average product
the quantity of output per unit of factor input // total product÷level of output
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Law of diminishing marginal returns
if increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and then the average product of that variable input will decline.
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Long run
the period of time when all factors of production can vary, as does the number of firms in the market, but the level of technology remains constant
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Marginal product
the addition to output produced by an extra unit of input // Δtotal output÷Δlevel of inputs
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Returns to scale
the change in percentage output resulting from a percentage change in all the factors of production
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Short run
the period of time in which at least one factor of production is fixed, as is the number of firms in the market
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Total product
the quantity of output measured in physical units produced by a given number of inputs over a period of time
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Very long run
the period of time in which all factors are variable, as is the number of firms in the market, and the state of technology is variable
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Average cost
the average cost of production per unit // AVC+AFC
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Average fixed cost
TFC÷Q
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Average variable cost
TVC÷Q
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Diseconomies of scale
a rise in the long run average costs of a firm as production increases
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Economic cost
the opportunity cost of an input into the production process
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Economies of scale
a fall in long run average costs of production as output rises
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External economies of scale
where the average cost of a firms production falls due to growth in the size of the industry in which the firm operates
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Fixed costs
costs which do not vary as the level of production changes
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Imputed cost
an economic cost which a firm does not pay for with money to another firm, but is the opportunity cost of the factors of production which the firm itself owns
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Internal economies of scale
economies of scale which arise due to growth in the scale of production within a firm
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Marginal cost
the cost of producing an extra unit of output
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Minimum efficient scale (MES)
the lowest level of output at which long run average costs are minimised
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Optimal level of production
the range of output over which long run average costs are lowest
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Semi-variable costs
costs that contain within it a fixed and variable cost element
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Total cost
the cost of producing at any given level of output // TFC+TVC
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Total fixed cost
the value of the cost of production that does not vary with output
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Total variable cost
the overall cost of factors of production that vary directly with output
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Variable costs
costs which vary directly in proportion with output
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Supernormal profit
profit above normal profit
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Normal profit
the amount of profit required to keep all factors of production employed in their current use in the long run (AKA Break-Even point)
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Subnormal profit
profit below normal profit
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Barriers to entry
factors which make it difficult/impossible for firms to enter an industry and compete with existing producers
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Barriers to exit
factors which make it difficult/impossible for firms to leave a market and cease production
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Brand
a name, design, symbol or other feature that distinguishes a product from another and makes it non-homogenous
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Concentration ratio
the market share of the largest firms in the industry
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Homogenous goods
identical goods made by different firms
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Independence
where the actions of one firm has no significant impact on any other firms in the market
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Interdependence
where the actions of one firm have an impact on other firms in the market
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Limit pricing
when a firm sets a low enough pricing to deter new entrants into a market
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Market concentration
the degree to which the output of a market is dominated by the largest firms
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Market share
the proportion of sales in a market taken by a firm/group of firms
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Market structure
the characteristics of a market that determine the behaviour of firms in the market
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Natural monopoly
where economies of scale are so large relative to market demand that the dominant producer will always enjoy lower costs of production than any competitors
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Non-homogenous goods
goods that are similar but not identical, for example through use of branding
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Perfect information
when all buyers are fully informed of all prices and quantities for sale, whilst producers have equal information to production techniques
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Product differentiation
aspects of a good/service that distinguish a product from its competition, for example through packaging or marketing
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Sunk costs
costs of production that are not recoverable if a firm leaves an industry
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Uncertainty
a when one firm does not know how other firms will react if it changes strategy
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Perfect competition
market structure where there are many buyers and sellers, freedom of entry and exit, perfect knowledge and where all firms produce a homogenous product
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Price taker
a firm with no control over market price and must accept the market price if it wants to sell its product
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Monopolistic competition
a market structure where a large number of small firms produce non-homogenous products and where there are no barriers to entry
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Monopolist
a firm that controls all the output in a market
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Monopoly
a market structure where ine firm supplies all output in the market without facing competition due to high barriers to entry
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Price discrimination
charging different prices for the same good/service in different markets
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Monopoly power
when firms are able to control the price they charge for their product
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Monopsony
when there is only one buyer in a market
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Contestable market
a market with freedom of entry and where the costs of exit are low
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Hit and run competition
when firms can enter a market at low cost attracted by high profits and then leave at low cost when profits fall
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Consumer sovereignty
exists when the economic system allocates resources totally according to consumer preference
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Cost-plus pricing
where firms fix a price for their products by adding a fixed percentage profit margin on top of the long run average cost of production
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Profit maximisation
when profit is at its highest // MR=MC
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Profit satisficing
making sufficient profit to satisfy the demands of owners eg. shareholders
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Revenue maximisation
when revenue is at its highest // MR=0
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Sales maximisation
when the volume of sales is at its highest // AR=AC
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Allocative efficiency
where the goods produced satisfy consumer preferences and maximise their welfare
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Dynamic efficiency
where investment reduces the long run average cost curve
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Productive efficiency
production at the lowest average cost
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X-inefficiency
inefficiency arising from a lack of competition
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Creative destruction
where firms produce/create new products that replace existing products on the market
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Multi-plant monopolist
the sole producer in an industry has multiple places of production which can be sold off to create competition
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Competitive tendering
introducing competition among private sector firms which put in bids for work contracted out by public sector firms
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Contracting out
getting private sector firms to produce goods and services then provided by the state
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Deregulation
the process of removing government controls from markets
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Regulatory capture
when firms can influence to their advantage the market regulatory body
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Nationalisation
the transfer of assets from the private to public sector
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Privatisation
the transfer of assets from the public to private sector
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Elasticity of demand for labour
responsiveness of the quantity demanded of labour to changes in the price of labour // Δ%Q or labour÷Δ%Wage rate
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Marginal physical product
the physical addition to output of an extra unit of a variable factor of production
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Marginal revenue product
the value of the physical addition to outputof an extra unit of a variable factor of production
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Total physical product
the total output of a given quantity of factors of production
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Unit cost of labour
the cost of employing labour per unit of output
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Activity rate
the proportion of any given population actually in the workforce
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Economically active
the number of workers in the workforce either in a job or unemployed
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Net migration
immigration-emigration
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Population of working age
size of the population between school leaving age and the state retirement age
Studied by 29 people
