Level 2
Level 3

Unit 1 - How Do Firms Operate in Competitive Marke


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Output
The number of goods or services produced by a firm
Fixed Costs
Costs that do not vary with output
Variable Costs
Costs that vary directly with output
Total revenue
The amount of money a firm receives when selling its product - price x quantity sold
Average Costs
The total costs divided by the output
Profit
Amount a firm makes after it has paid all its costs
Production
The process of combining scarce resources to make an output
Productivity
Output per worker per period of time
Merger
Agreed coming together of two firms
Takeover
When one firm seeks to take control of another
Horizontal intergration
When one firm joins with another at the same stage of production
Forward vertical integration
When one firm joins with another who is in front of them in the production process
Backward vertical integration
When one firm joins with another who is in behind them in the production process
Conglomerate integration
When one firm joins with another firm that is in a different market
Economies of scale
As a firm grows larger in size, the long run average costs fall
Risk-bearing EOS
As a firm grows larger it can spread risk across markets
Financial EOS
As a firm grows larger it is able to gain cheaper sources of finance
Marketing EOS
Larger firms find it more cost-effective to advertise nationally
Technical EOS
As a firm grows larger it can invest in machinery that increase productivity
Managerial EOS
As a firm grows larger it can emply specialist managers
Purchasing EOS
As a firm grows larger it will be able to buy in bulk
Diseconomies of Scale
As a firm grows too large and average costs start to rise
Gross Income
The amount a person receives before all deductions are taken into account
Net income
The take-home pay once deductions have been taken away from gross income
Nominal Income
Income paid to labour unadjusted for the effects of inflation
Real Income
Income paid to labour adjusted for the effects of inflation
Inflation
A rise in the general level of prices of goods and services over a period of time
Labour Market
The interaction between workers (supply of labour) and employers (demand for labour)
National Minimum Wage
A pay floor introduced by the government which sets a wage level below which producers cannot legally go