Economics Unit 3 deffinitions

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Profit maximisation
MC=MR
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Revenue maximisation
MR = 0
2 of 28
Sales maximisation
Producing at AC=AR and making only normal profit with the objective of increasing market share or preventing entry of new firms, or highest output at which TC = TR is achieved
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Satisficing
achieving a balance between profit and revenue maximisation, based on the relevant power of the stakeholder groups
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Vertical integration
A merger between two firms in the same Industry at different stages of production
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Backward vertical integration
A merger between two firms in the same Industry at different stages of production. Merging with a firm nearer the start of the production process.
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Forward vertical integration
A merger between two firms in the same Industry at different stages of production Merging with a firm nearer to the consumer.
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Horizontal integration
merging of two firms in the same industry and the same stage of the production process
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Conglomerate integration
merging of two firms in different industries with no obvious connection
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Demerger
separation of a previously merged firm
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Total revenue
P x Q
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Average revenue
TR / Q
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Marginal Revenue
change in TR/ change in Q
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Total cost
TFC + TVC
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Fixed Costs
costs that do not vary with output
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Variable Costs
costs that vary directly with output
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Average total cost
TC / Q
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Average fixed cost
TFC / Q
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Average variable cost
TVC / Q
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Marginal cost
change in TC / change in Q
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Marginal cost
change in TC / change in Q
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The law of diminishing returns
when additional amounts of a variable factor are applied to a fixed quantity of a fixed factor eventually marginal product and average product will fall. [so MC and AC will rise]
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Economy of Scale
reduction in LRAC due to an increase in size of the firm
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Diseconomy of Scale
increase in LRAC due to an increase in size of the firm
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Productive Efficiency
lowest point on AC curve (where AC = MC)
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Allocative Efficiency
P = MC (where MC cuts AR)
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Dynamic Efficiency
an improvement in efficiency in the long run
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X-inefficency
where a firm allows costs to drift above the efficient point due to managerial slack
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Other cards in this set

Card 2

Front

MR = 0

Back

Revenue maximisation

Card 3

Front

Producing at AC=AR and making only normal profit with the objective of increasing market share or preventing entry of new firms, or highest output at which TC = TR is achieved

Back

Preview of the back of card 3

Card 4

Front

achieving a balance between profit and revenue maximisation, based on the relevant power of the stakeholder groups

Back

Preview of the back of card 4

Card 5

Front

A merger between two firms in the same Industry at different stages of production

Back

Preview of the back of card 5
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