Economics - Markets, Market Failure, Costs & Revenues & Economies of Scale

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What are fixed costs?
Costs that don't change regardless of production levels.
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What are variable costs?
Costs than change directly with the level of production.
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What is the law of diminishing returns?
Initially productivity increases as we add more of the variable factor (labour) however that rate of increase starts to slow as they come up against fixed factors.
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What are economies of scale?
The benefits that accrue to size.
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What are some types of economies of scale?
Technical (manufacturing processes), Marketing (can afford more lavish campaigns), Risk Bearing (companies can afford to flop), Purchasing (buying in bulk), Financial (Borrow at cheaper rates) and Managerial (hiring of specialists)
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What are diseconomies of scale?
The problems that company gets for being to big.
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What are some types of diseconomies of scale?
Communication problems (hierarchical), coordinations (departments disagreeing) and motivation (in larger companies its easier to go under the radar and decrease productivity).
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What is the minimum efficient scale?
The level at which average costs stop falling/The size the business must be in order to survive.
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Give examples of barriers to entry.
Capital, high sunk costs, intellectual property (patents), brand loyalty, switching costs, retaliation.
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What is supernormal profit?
Profit above normal profit. Firms cannot make supernormal profit in the long run except for monopolies.
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What is perfect competition?
A market where there is many buyers or sellers and the product is homogeneous. There is a wide availability of substitutes and no barriers to entry/exit. Price taking.
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What is a monopoly?
The market is essentially controlled by one firm and there are no substitutes for the good. High barriers to entry and can make supernormal in the long run.
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Why can monopolies make supernormal profit in the long run?
Due to high barriers to entry.
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What is an oligopoly?
Small numbers if large firms that dominate the market. High barriers to entry and usually a differentiated product. Firms are interdependent.
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What does interdependent mean?
When the actions of one firm have implications for all firms - should they compete or cooperate?
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What is monopolistic competition?
Competitive market structure where the product is similar but differentiated Eg pubs. Many small firms and no barriers to entry.
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What is a cartel?
Where firms agree on price fixing, supply quotas and market share and act together as a monopoly. They restrict the output and raise the price but it is Illegal.
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What types of growth are there?
Horizontal, Vertical and Diversified.
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What is horizontal growth?
Companies expand its activities within the same stage of the production process.
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What is vertical growth?
The firm expands its activities to include a different stage of the production process.
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What is diversified growth?
The firm expands its activities that are unrelated to its current business activities.
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What are the four types of efficiency (in the context of markets)?
Social efficiency (where external costs and benefits are accounted for), Allocate efficiency (where society produces goods + services at a minimum cost), Technical efficiency (production of goods using minimum resources) and Productive efficiency.
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What are merit goods?
Goods that can be provided by the market but society decided that everyone needs it Eg education and health.
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What are public goods?
The market wouldnt provide such goods and services and there is non-excludability Eg street lighting, defence and police.
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Other cards in this set

Card 2

Front

What are variable costs?

Back

Costs than change directly with the level of production.

Card 3

Front

What is the law of diminishing returns?

Back

Preview of the front of card 3

Card 4

Front

What are economies of scale?

Back

Preview of the front of card 4

Card 5

Front

What are some types of economies of scale?

Back

Preview of the front of card 5
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