4.

objectives of firms, bariers to entry and exit, business efficiency (allocative, productive, dynamic and x-efficiency), shifting cost curves, shifting revenue curves, perfect competition

what is predatory pricing

when a firm undercuts its rival on purpose, sacrificing profit in order to get rid of competitors

what is the principle agent problem

a divorce of ownership and control, the owners are the principles and the managers are the agents who run the day to day operations

where does sales maximisation occur

AC=AR

business wants to be as large as possible without increasing costs

why would a firm want to achieve sales maximisation

economies of scale

limit price - set breakeven price to minimise no of competitors that enter market

flood the market - make consumers aware of your product to the point they develop loyalty to your product

objectives of public sector organisations

maximise the public interest (P=Mc)

pursue CSR

what is a barrier to entry

any obstacle that prevents a new firm from entering the market

what are the 4 groups involved in barriers to entry

LoydsTSB - (used to be the name of Lloyds bank)

L - legal

T - technical

S - strategic

B - brand loyalty

name 2 specific barriers within legal

patents, permits and insurance

what is red tape (component of legal)

excessive paperwork and bureaucracy

name 2 specific barriers to entry in technical

industry specific barriers e.g. high start-up costs, sunk costs

what are sunk costs

costs which cannot be recovered when a firm leaves the market e.g. advertising

name 2 specific barriers to entry in strategic

already withing the market but aim to undercut rivals

predatory pricing and heavy advertising

barriers to entry of brand loyalty

people’s go to place tp buy g/s so they are unlikely to buy from another firm

what are barriers to exit

any obstacle that prevents a firm leaving the market

give 2 examples of barriers to exit

undervaluation of assets - bought items but they are selling for much cheaper

penalties for leaving contracts early - gas, electric and rent contracts require money sum to break off

what is the basic economics problem

what how and who to produce for

what are the 4 types of efficiencies

allocative, productive, x and dynamic efficiency

what is allocative efficiency

when resources follow consumer demand where society surplus and net social benefit is maximised

demand = supply

MSB = MSC

what is productive efficiency

when a firm is operating at the lowest point on their AC curve, giving them full exploitation of economies of scale

MC = AC

what is x - efficiency

business is minimising their waste - production takes place on AC curve

why would a business have x - inefficiency

monopolist - have competitive drive so more likely to do it

public sector firms - no profit drive so more likely to do it

what is dynamic efficiency

reinvestment or long run SNP e.g. capital and innovation

what is the difference between static and dynamic efficiency

dynamic efficiency occurs overtime but static ones are all of the efficiencies that occur at a set point

when there is a change in fixed costs which curve do you shift

the AC curve - whenever fixed costs change there is no change in the rate of change in total costs

when there is a change in variable costs which curve do you shift

shift AC and MC upwards

what are characteristics of a perfectly competitive market

many buyers and sellers

homogenous goods 9firms are price takers)

no barriers to entry/exit

perfect information

firms are profit maximisers

in a perfect market is normal profit long run or short run

long run

in a perfect market are other types of profit excluding normal, short run or long rn

short run