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3. BusinessObjective
Micro
| Term | Definition |
|---|---|
| Conglomerate Integration | the merger of firms with no common connection |
| Corporate Social Responsibility (CSR) | when firms take responsibility for consequences on the environment and behave more ethically |
| Diversification | when firms grow by expanding their production through increasing output, widening their customer base, developing a new product or diversifying their range |
| Growth Maximisation | when firms aim to increase the size of their market share, e.g through mergers (AC=AR) |
| Horizontal Integration | the merger of firms in the same industry at the same stage of production |
| Maximisation | consumers aim to generate the greatest utility possible, firms aim to generate the highest profits possible |
| Principal-Agent Problem | where the agent makes decisions on behalf of the principal; the agent should maximise the benefits of the principal but have the temptation of maximising their own benefits |
| Profit Maximisation | (MC=MR) when firms produce at a point which derives the greatest profit |
| Profit Satisficing | when a firm earns just enough profits to keep shareholders happy |
| Sales Revenue Maximisation | (MR=0) when firms produce at a point which derives the greatest revenue |
| Sales Volume Maximisation | (AR=AC) when firms produce at a point where they sell as many of their goods and services without making a loss |
| Utility Maximisation | when firms aim to maximise social utility |
| Vertical Integration | when a firm merges/takes over another firm in the same industry, but at a different stage of production |
| Average Cost/Average Total Cost (AC/ATC) | the cost of production per unit, calculated by Total Costs/Quantity Produced |
| Constant Returns to Scale | output increases by the same proportion that the inputs increase by |
| Decreasing Returns to Scale | an increase in inputs by a certain proportion will lead to output increasing by a smaller proportion |
| Diseconomies of Scale | the disadvantages that arise in large businesses that reduce efficiency and cause average costs to rise |
| Economies of Scale | the advantages of large-scale production that enable a large business to produce at lower average cost than a smaller business |
| External Economies of Scale | an advantage which arises from the growth of the industry within which a firm operates, independent of the firm itself |
| Increasing Returns to Scale | an increase in inputs by a certain proportion will lead to an increase in output by a larger proportion |
| Internal Economies of Scale | an advantage that a firm is able to enjoy because of growth in the firm, independent of anything happening to other firms or the industry in general |
| Law of Diminishing Returns | if a variable factor is increased when another factor is fixed, there will come a point when each extra unit of the variable factor will produce less output than the previous output; after a certain point, marginal output falls |
| Long-Run | the length of time when all factors are variable |
| Minimum Efficient Scale (MES) | the lowest level of output necessary to fully exploit economies of scale |
| Short-Run | the length of time when at least one factor of production is fixed |
| Sunk Cost | costs that can't be recovered once they have been spent |
| Total Cost (TC) | the cost to produce at a given level of output |
| Total Fixed Cost (TFC) | costs which do not vary with output |
| Total Variable Cost (TVC) | costs which change with output, calculated by TVC+TFC |
| Accounting Profit | total monetary revenue minus total monetary costs |
| Average Revenue | the price each unit is sold for, calculated by TR/Quantity Sold |
| Economic Profit | profit which considers the opportunity cost of production as well as monetary costs |
| Individual Demand | demand of an individual or firm, measured by the quantity bought at a certain price at one point in time |
| Joint Demand | when goods are bought together |
| Loss | when revenue does not cover costs |
| Market Demand | sum of all individual demands in a market |
| Normal Profit | the minimum reward required to keep entrepreneurs supplying their enterprise, the return sufficient to keep the factors of production committed to the business (TC=TR) |
| Supernormal Profit | the profit above normal profit (TR>TC) |
| Total Revenue | revenue generated from the sale of a given level of output, calculated by Price X Quantity Sold |
Created by:
19thomps