THEME 3

• 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
• 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
• 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