micro 2

What are the 4 main firm size categories?

Micro (0–9), Small (10–49), Medium (50–249), Large (250+)

What are the 4 main firm size categories?

Micro (0–9)

What are the 4 main firm size categories?

Small (10–49)

What are the 4 main firm size categories?

Medium (50–249)

What are the 4 main firm size categories?

Large (250+)

What are internal growth methods?

Organic growth (e.g. increasing output, reinvesting profits)

What are external growth methods?

Mergers and takeovers (integration)

What is a merger?

Two firms combine to form one

What is a takeover?

One firm buys another

What is horizontal integration?

Merger of firms at same stage of production

What is vertical integration?

Merger of firms at different stages of production

What is forward vertical integration?

Moving closer to the consumer

What is backward vertical integration?

Moving towards raw materials

What is conglomerate integration?

Merger of unrelated firms

What is organic growth?

Expansion using internal resources

What is inorganic growth?

Growth via mergers/takeovers

Advantage of organic growth?

Lower risk, maintains control

Advantage of inorganic growth?

Faster market expansion

Disadvantage of mergers?

Integration issues, culture clash

What is synergy?

Combined firm more efficient than separate firms

What is total revenue (TR)?

Price × Quantity

What is average revenue (AR)?

TR ÷ Quantity

What is marginal revenue (MR)?

Change in TR from selling one more unit

What is revenue maximisation?

Output where MR = 0

What are fixed costs?

Costs that do not change with output

What are variable costs?

Costs that change with output

What is total cost (TC)?

Fixed + Variable costs

What is average cost (AC)?

TC ÷ Quantity

What is marginal cost (MC)?

Cost of producing one more unit

What are economies of scale?

Falling AC as output increases

Types of economies of scale?

Technical, managerial, financial, marketing

What are diseconomies of scale?

Rising AC due to inefficiencies

Key features of perfect competition?

Many firms, identical products, free entry/exit, perfect info

What type of firms are they?

Price takers

Why are firms price takers?

Cannot influence market price

Profit in long run?

Normal profit only

What is a monopoly?

One firm dominates market (>25% UK)

Key features of monopoly?

High barriers, price maker, no close substitutes

What are barriers to entry?

Obstacles preventing firms entering market

Examples of barriers?

Patents, high costs, brand loyalty

Advantages of monopoly?

Economies of scale, innovation

Disadvantages of monopoly?

Higher prices, lower output

Features of monopolistic competition?

Many firms, differentiated products

Pricing power?

Some control over price

Examples?

Restaurants, clothing brands

What is an oligopoly?

Few large firms dominate

Key feature of oligopoly?

Interdependence

What is collusion?

Firms cooperate to set prices/output

What is price leadership?

One firm sets price, others follow

What is non-price competition?

Branding, advertising, quality

What is price discrimination?

Charging different prices to different consumers

Conditions for price discrimination?

Market power, info, prevent resale

1st degree discrimination?

Charge max willingness to pay

2nd degree discrimination?

Price varies by quantity

3rd degree discrimination?

Different groups charged differently

What is profit maximisation?

Where MC = MR

What is revenue maximisation?

Where MR = 0

What is sales maximisation?

Maximise revenue subject to profit constraint

What is satisficing?

Achieving acceptable profit level

Why may firms not maximise profit?

Separation of ownership and control

What is a monopsony?

One dominant buyer

Example of monopsony?

Large supermarket buying from suppliers

Effect on wages/prices?

Lower wages/prices paid

What is derived demand?

Demand for labour depends on demand for output

What is MRP (marginal revenue product)?

Extra revenue from one more worker

Labour demand rule?

Firms hire where MRP = wage

Factors affecting labour demand?

Demand for product, productivity, wages

What is labour supply?

Workers willing to work at given wage

Factors affecting labour supply?

Wages, skills, migration, working conditions

What is backward bending supply?

At high wages, workers choose more leisure

What is minimum wage?

Legal minimum pay per hour

Effect above equilibrium?

Excess supply (unemployment)

Possible benefits?

Higher incomes, reduced poverty

Possible drawbacks?

Unemployment, higher costs for firms