Edexcel A-level Economics Theme 3 with correct answers

Backwards vertical integration a joining together into one firm of two or more firms where the purchaser merges with/takes over one or more of its suppliers Conglomerate integration a joining together into one firm of two or more firms producing unrelated products Demerger when a firm splits into two or more independent businesses Divorce of ownership from control when managers and directors of a business are different from the owners of a business (the shareholders) Forward vertical integration a joining together into one firm of two or more firms where the supplier merges with/takes over one or more of its buyers Horizontal integration a joining together of two firms in the same industry at the same stage of production Niche market a small segment of a larger market Merger/integration the joining together of two or more firms under common ownership Not-for-profit organisations organisations that do not aim to make a profit; rather, they use any profit or surplus they generate to support their aims (eg. a charity) Organic or internal growth a firm increasing its size through investment in capital equipment/an increased labour force Private sector organisations organisations owned by individuals or companies rather than the state Public sector organisations organisations owned and controlled by the state Synergy when two or more activities/firms put together can lead to greater outcomes than the sum of the individual parts Vertical integration a joining together into one firm of two or more firms in the same industry at different stages of production Average revenue the average receipts per unit sold // TR÷Q Marginal revenue the addition to total revenue of an extra unit sold // ΔTR÷ΔQ Total revenue the total amount of money received from the sale of any given quantity of output // AR*Q Average product the quantity of output per unit of factor input // total product÷level of output Law of diminishing marginal returns if increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and then the average product of that variable input will decline. Long run the period of time when all factors of production can vary, as does the number of firms in the market, but the level of technology remains constant Marginal product the addition to output produced by an extra unit of input // Δtotal output÷Δlevel of inputs Returns to scale the change in percentage output resulting from a percentage change in all the factors of production Short run the period of time in which at least one factor of production is fixed, as is the number of firms in the market Total product the quantity of output measured in physical units produced by a given number of inputs over a period of time Very long run the period of time in which all factors are variable, as is the number of firms in the market, and the state of technology is variable Average cost the average cost of production per unit // AVC+AFC Average fixed cost TFC÷Q Average variable cost TVC÷Q Diseconomies of scale a rise in the long run average costs of a firm as production increases Economic cost the opportunity cost of an input into the production process Economies of scale a fall in long run average costs of production as output rises External economies of scale where the average cost of a firms production falls due to growth in the size of the industry in which the firm operates Fixed costs costs which do not vary as the level of production changes Imputed cost an economic cost which a firm does not pay for with money to another firm, but is the opportunity cost of the factors of production which the firm itself owns Internal economies of scale economies of scale which arise due to growth in the scale of production within a firm Marginal cost the cost of producing an extra unit of output Minimum efficient scale (MES) the lowest level of output at which long run average costs are minimised Optimal level of production the range of output over which long run average costs are lowest Semi-variable costs costs that contain within it a fixed and variable cost element Total cost the cost of producing at any given level of output // TFC+TVC Total fixed cost the value of the cost of production that does not vary with output Total variable cost the overall cost of factors of production that vary directly with output Variable costs costs which vary directly in proportion with output Supernormal profit profit above normal profit Normal profit the amount of profit required to keep all factors of production employed in their current use in the long run (AKA Break-Even point) Subnormal profit profit below normal profit Barriers to entry factors which make it difficult/impossible for firms to enter an industry and compete with existing producers Barriers to exit factors which make it difficult/impossible for firms to leave a market and cease production Brand a name, design, symbol or other feature that distinguishes a product from another and makes it non-homogenous Concentration ratio the market share of the largest firms in the industry Homogenous goods identical goods made by different firms Independence where the actions of one firm has no significant impact on any other firms in the market