Edexcel A-Level Economics Theme 3
Firm correct answers An organisation that brings together factors of
production in order to produce output.
Reasons Firms Grow correct answers 1. Increase market share.
2. Increase economies of scale.
3. Gain power.
Reasons Firms Remain Small correct answers 1. Legal barriers.
4. Overt barriers
5. High sunk costs.
6. Niche-market business.
7. Lack of expertise.
8. Optimum efficiency achieved.
Barriers to Entry correct answers Obstacles that ensure the continued
existence of monopoly power of firms in a market.
Predatory Pricing correct answers Pricing below costs to drive out other
firms. Limit Pricing correct answers Pricing low enough to discourage
entry ofnew firms.
Destroyer Pricing correct answers Charging a deliberately low price to try to
undermine competitors and put them out of business.
Organic Growth correct answers Firms growing by being sucessful and
reinvesting profits to expand.
Horizontal Merger correct answers Merger between firms in the same
industry.
Vertical Merger correct answers merger between firms in the same
industry but at different stages of production.
Conglomerate Merger correct answers Merger between firms in
completely different industries.
Synergy correct answers Two companies coming together to be better
together.
Demerger correct answers When a firm splits into two or more
independent businesses.
Business correct answers A firm that produces or deals in and exchanges
goods or services.
, Privatisation correct answers Selling state-owned and controlled
business organisations to investors in the private sector.
Nationalisation correct answers Governments take control of privately run
businesses. Fixed Costs correct answers Do not change or vary according to
number of units sold. Variable Costs correct answers Do change according
to number of units sold.
Long Run correct answers When all factors of production can be varied.
Short Run correct answers When one or more factors of production
are fixed. Total Costs correct answers FC + VC
Average Total Cost correct answers
TC/Qty Average Fixed Cost correct
answers FC/Qty Average Variable Cost
correct answers VC/Qty
Law of Diminishing Returns correct answers If increasing quantity of
variable product are combined with a fixed input then marginal product
and average product of the variable input will decline.
Economies of Scale correct answers As output rises, cost per unit
decreases. Diseconomics of Scale correct answers As output rises,
cost per unit rises.
Sunk Costs correct answers Costs that cant be recovered (e.g.
advertising). Total Product correct answers Total output produced
by the firm.
Average Product correct answers Quantity of output per unit of
input.
=TP/Qty
Marginal Product correct answers The addition to output produced by and
additional unit of input.
Marginal Cost correct answers The addition to cost for producing and
additional unit of output.
= change in TC/change in output
Revenue correct answers Money that comes into a business from the sale
of a good over a period of time.
Firm correct answers An organisation that brings together factors of
production in order to produce output.
Reasons Firms Grow correct answers 1. Increase market share.
2. Increase economies of scale.
3. Gain power.
Reasons Firms Remain Small correct answers 1. Legal barriers.
4. Overt barriers
5. High sunk costs.
6. Niche-market business.
7. Lack of expertise.
8. Optimum efficiency achieved.
Barriers to Entry correct answers Obstacles that ensure the continued
existence of monopoly power of firms in a market.
Predatory Pricing correct answers Pricing below costs to drive out other
firms. Limit Pricing correct answers Pricing low enough to discourage
entry ofnew firms.
Destroyer Pricing correct answers Charging a deliberately low price to try to
undermine competitors and put them out of business.
Organic Growth correct answers Firms growing by being sucessful and
reinvesting profits to expand.
Horizontal Merger correct answers Merger between firms in the same
industry.
Vertical Merger correct answers merger between firms in the same
industry but at different stages of production.
Conglomerate Merger correct answers Merger between firms in
completely different industries.
Synergy correct answers Two companies coming together to be better
together.
Demerger correct answers When a firm splits into two or more
independent businesses.
Business correct answers A firm that produces or deals in and exchanges
goods or services.
, Privatisation correct answers Selling state-owned and controlled
business organisations to investors in the private sector.
Nationalisation correct answers Governments take control of privately run
businesses. Fixed Costs correct answers Do not change or vary according to
number of units sold. Variable Costs correct answers Do change according
to number of units sold.
Long Run correct answers When all factors of production can be varied.
Short Run correct answers When one or more factors of production
are fixed. Total Costs correct answers FC + VC
Average Total Cost correct answers
TC/Qty Average Fixed Cost correct
answers FC/Qty Average Variable Cost
correct answers VC/Qty
Law of Diminishing Returns correct answers If increasing quantity of
variable product are combined with a fixed input then marginal product
and average product of the variable input will decline.
Economies of Scale correct answers As output rises, cost per unit
decreases. Diseconomics of Scale correct answers As output rises,
cost per unit rises.
Sunk Costs correct answers Costs that cant be recovered (e.g.
advertising). Total Product correct answers Total output produced
by the firm.
Average Product correct answers Quantity of output per unit of
input.
=TP/Qty
Marginal Product correct answers The addition to output produced by and
additional unit of input.
Marginal Cost correct answers The addition to cost for producing and
additional unit of output.
= change in TC/change in output
Revenue correct answers Money that comes into a business from the sale
of a good over a period of time.
