Edexcel A-Level Economics Theme 3 Questions & Correct Answers/ Graded A+

Firm : An organisation that brings together factors of production in order to produce output. Reasons Firms Grow : 1. Increase market share. 2. Increase economies of scale. 3. Gain power. Reasons Firms Remain Small : 1. Legal barriers. 2. Overt barriers 3. High sunk costs. 4. Niche-market business. 5. Lack of expertise. 6. Optimum efficiency achieved. Barriers to Entry 2 : Obstacles that ensure the continued existence of monopoly power of firms in a market. Predatory Pricing : Pricing below costs to drive out other firms. Limit Pricing : Pricing low enough to discourage entry ofnew firms. Destroyer Pricing : Charging a deliberately low price to try to undermine competitors and put them out of business. Organic Growth : Firms growing by being sucessful and reinvesting profits to expand. Horizontal Merger : Merger between firms in the same industry. Vertical Merger : merger between firms in the same industry but at different stages of production