Opportunity cost
The next best alternative that’s been given up
What are the four factors of production?
- Capital
- Enterprise
- Land
- Labour
Profit Maximisation
A firm profit maximises when they are operating at the price and output which derives the greatest profit
- MC = MR
How do you work out Profit, and what is it?
- Total Revenue - Total cost
- the reward for entrepreneurs to take risks
What is break-even?
When Total Revenue = Total Cost
What is Sales Maximisation, and how do you calculate it?
- When the firm aims to sell as much of their goods and services as possible without making a loss.
- AC = AR
What is Satisficing?
A firm is profit satisficing when it is earning enough profits to keep its shareholders happy.
What is the business aim of survival?
New firms entering competitive markets, or firms in periods of economic decline might aim to simply survive.
What is the business aim of gaining a large Market share?
This helps increase the chance of surviving in the market by gaining consumer loyalty through maximising sales.
What is the business aim of ‘Cost efficiency’?
- The more cost efficient a firm is, the lower their average costs.
- A firm gets a competitive advantage if they can afford to charge consumers lower prices
What is the business aim of ‘employee welfare’?
- When employees are happy, they are likely to be productive and do a good job.
- Also increases loyalty to employer so they are less likely to leave.
What is the business aim of ‘customer satisfaction’?
- Firms might aim to increase their competitiveness by improving their quality or service.
- This makes them more price inelastic
What may be some social objectives of some firms?
- Some firms may focus on their CSR
- May aim to maximise social welfare and perform more ethically
What is a stakeholder?
Anyone affected or interested in the way a business is run
What is the definition of an entrepreneur?
A risk-taking individual who organises factors of production to set up an enterprise
What is ‘creative destruction’?
The process of how innovation leads to the destruction of an outdated product of system and creates a new one.
What is a plc.?
Public Limited Companies owned by their shareholder and have limited liability and raises finance by selling their shares to the general public.
What’s a private limited company?
- Have Ltd. after the company name
- Have limited liability for business debts and find it easier to receive bank loans
- Get more regulation and involve shareholders
Why do private limited companies have ‘limited liability’?
- Shareholders cannot be required to use their own personal assets to cover debts
- Only use money they already put into business
What is a ‘sole trader’?
A person who is the exclusive owner of a business and receives all the profit but had unlimited liability and may struggle to raise finance.
What is the ‘price mechanism’?
An economic model that helps to explain the allocation of resources between different possible uses.
What are the functions of the price mechanism?
- Signalling: prices give signals to producers and consumers
- Rationing: only those willing and able to pay
- Incentives: profitability motivates firms, and value for money motivates consumers
What is the ‘stock exchange’?
an exchange where stock brokers and traders can buy and sell shares of stock and bonds and other financial instruments.
How can you improve productivity?
- Better training
- Better management
- Improved technology
- Reduces cost of production
