Scribd Logo
Upload

Welcome to Scribd!

  • 1K views

    Edexcel Economics Notes

    Uploaded by

    AY6061
    1. Economies of scale allow firms to reduce average costs through bulk purchasing, shared marketing costs, lower borrowing costs, and increased R&D spending. However, it also leads to higher entry barriers and reduced competition. 2. Vertical integration allows firms to gain control over suppliers and distribution channels but requires large startup costs and risks redundant assets if demand falls. 3. Collusion between firms to fix prices can lead to high profits but is difficult to maintain due to incentives to cheat and potential new competition. Governments regulate cartels through fines.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd

    Edexcel Economics Notes

    Uploaded by

    AY6061
    1K views6 pages
    1. Economies of scale allow firms to reduce average costs through bulk purchasing, shared marketing costs, lower borrowing costs, and increased R&D spending. However, it also leads to higher entry barriers and reduced competition. 2. Vertical integration allows firms to gain control over suppliers and distribution channels but requires large startup costs and risks redundant assets if demand falls. 3. Collusion between firms to fix prices can lead to high profits but is difficult to maintain due to incentives to cheat and potential new competition. Governments regulate cartels through fines.

    Original Description:

    Edexcel Economics Unit 3 Business Economics and Efficiency

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1. Economies of scale allow firms to reduce average costs through bulk purchasing, shared marketing costs, lower borrowing costs, and increased R&D spending. However, it also leads to higher entry barriers and reduced competition. 2. Vertical integration allows firms to gain control over suppliers and distribution channels but requires large startup costs and risks redundant assets if demand falls. 3. Collusion between firms to fix prices can lead to high profits but is difficult to maintain due to incentives to cheat and potential new competition. Governments regulate cartels through fines.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views6 pages

    Edexcel Economics Notes

    Uploaded by

    AY6061
    1. Economies of scale allow firms to reduce average costs through bulk purchasing, shared marketing costs, lower borrowing costs, and increased R&D spending. However, it also leads to higher entry barriers and reduced competition. 2. Vertical integration allows firms to gain control over suppliers and distribution channels but requires large startup costs and risks redundant assets if demand falls. 3. Collusion between firms to fix prices can lead to high profits but is difficult to maintain due to incentives to cheat and potential new competition. Governments regulate cartels through fines.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 6
    At a glance
    Powered by AI
    The document discusses several technical concepts and their applications across multiple pages in detail.

    The document covers various technical topics such as data processing, algorithms, machine learning and their real-world applications.

    The information is organized into multiple pages with each page providing details on specific technical aspects or applications.

    c   

    
     
     
    -Less incentive to be efficient/innovative/produce new products
    -More resources to protect market dominance by raising barriers to entry
    +More funds for investment and R&D
    +Reserves to overcome short term difficulties (eg: stability to employment)

    c     
    -Higher prices, lower output for domestic consumers
    +Financial muscle to compete effectively against multinational firms

        


    -Productively inefficient(MCтAC)
    +Economies of scale: AC likely lower than most efficient perfectly competitive firms (MC=AC)
    
         
    -Misallocation of resources (PтMC) (Less choice/Lower quality)
    +Avoid unnecessary duplication of capital (eg: airport runway / railway track / electricity/water
    distribution network)

         
    -Wastes resources as profits from one sector is used to finance losses in another
    +Increased range of goods (eg: provision of essential loss-making services: rural bus/mail services)

      
      
    -Raise producer surplus, reduce consumer surplus/welfare
    +Raise firm͛s total revenue(TR) to allow survival of essential services

            


    -Complacent monopoly raises entry barriers by limit/predatory pricing
    +Supernormal profit acts as incentive for rival firms to breakdown monopolies through creative
    destruction by investing in R&D and innovations
      
    
     : Firms agree to restrict competition between themselves by fixing prices and restricting output
    to secure joint profit maximisation.
    
    Price fixing, restrict output (allocating market share)
    Limit advertising budget
    Share market/technical info
        
    Firms have an understanding on pricing and output decisions often through price leadership (eg:
    Other firms follow pricing decisions of market leader)
       
    Oligopolistic market structure (so few major firms to reach an agreement)
    Effective monitoring system to prevent cheating
    No potential competition (eg: hit-and-run) /no effective competition
    Similar cost structure for similar pricing decisions
    Stable, mature industries (eg: steel)
         
    Same prices
    Raise prices by same amount at the same time
    High supernormal profits
    High share prices
       
       :
    -Competition Commission: -Fines up to 10% of annual revenue/ Imprisonment for directors
    -Whistle blowers protected by competition law
    -      :
    -Cartels tend to breakdown due to cheating
    -Independent firms (competition) gain market share at expense of cartel members
    -Similar cost structures: firms are innocent, just responding to increases in production costs
    -technological change (internet) undermines price/output agreements

    -Tacit collusion: - hard to prove


    -long investigation means collusion still goes on
    -opportunity cost of investigation: funds/time
    -Welfare loss depends on magnitude of price fixing
     
    +Share R&D costs=wider range of products, higher quality, more choice
    +Less wastage on advertising
    +Share technical info=improve safety of products/ safety of workers
     
    -higher producer surplus, prices
    - lower consumer surplus, quality, choice=welfare loss
    ±    
    
    !"#      
    Cut costs:-wage cuts
    -staff cuts
    -reduce pension benefits
    Increase efficiency:
    -combine head offices
    -rationalise supply chain
    - invest in new technology (increase productivity to lower unit costs)
    2.Close down/     /services
    $"     :
    -concentrate on core activities to compete more effectively
    %"   &
    '"   &Increase/ decrease advertising
    ("    
    
       (Turn answer on its tail)
    !"#      &) *  
     + 
     , *     
     #    - * *- 
       -   
    .         /
    0" &#
    - 
     - 
           
      
    $"   
    
    %"

      
     &  
      ± +   
     
    
    '"   &  *+ 
     
     &  *,     
    - 
    ("    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
        
    )  1+   
    )   
    +    
      .&-   /
    
    ±   (Indication: High concentration ratio/closure, lower profits)
    !"Y  
      &
     Purchasing: Bulk buying
    Marketing: Advertising costs shared
    Financial: Lower borrowing costs
    Managerial: Share head office
    Technical: Increased dimensions, indivisibilities, R&D costs
    Risk-bearing: Spread risks over wide range of products
    0"Y ±  
      
    No single firm able to fully exploit benefits of economies of scale due to high fixed costs
    High (Minimum Efficient Scale): Large scale production needed to obtain economies of scale
    $"Y = -  &
    %"Y = -  &Advertising
    -Losses from resale of machinery/capital
    -Redundancy
    -Fines from contractual obligations (if contract broken)
    '"  &
     ) *  
       2  
     2 
    =some industries dependent on government subsidies
     3 *)
         by existing firms leading to  
      )  &Consumer Inertia
     

      &Hard to secure supplies of raw materials/skilled labour/lack of


    expertise
    ("4  
     
    
    
       (Turn answer on its tail)
    !"Y   
      .+      
     1    /
    0"Y ±  
      &5        2   
    $"Y  6 &) 
    -   
    %"Y   &       
     7  - 
    
     ±      *   
    
    '"c     &)   *   
         
        
    ("4  
    &  
         -  
    
       
      
     8
    9"
      

     &  


           
       
    !"Y ± -
    &   -
    
     :
    0"Y 
    
      
    
    - - - ;  8
    $"Y -    - .     /      
      
    c  1  
    
       <     
    !" 
      &
     Purchasing: Bulk buying
    Marketing: Advertising costs shared
    Financial: Lower borrowing costs
    Managerial: Share head office
    Technical: Increased dimensions, indivisibilities, R&D costs
    Risk-bearing: Spread risks over wide range of products
    0"57 
    - ;  .   
        /
    5 
    = -  -  
       
    $"5#
      
      
      1      
    5    
    %"     
    '"   &
      
     
     -    
         - 
     
    ("7 +  -    
    4  &  -    &Secure market outlets
        -
     &Gain market info
       &  .  ;    
         / 
    
       (Turn answer on its tail)
    !"Y   
      .+      
     1      -  
      
     
        
    
        -  
     "  
    0"Y 

      
     *)   +      
    $"Y    
      

     
    %"Y    &6     -  
    
    '"Y 3    
      &)  
      
     
    ("Y )  = ) 
    
    = :     
    !"Y 3   
    &     
     
        8
      
    
    Def:  
    imposed by regulator on firm to prevent abuse of monopoly power 
    Lasts for' 

    #5>?
    Firm is allowed to increase prices k% above rate of inflation
    #@?
    Firm is allowed to increase prices X% below rate of inflation

         6     
    +More accurate revenue estimation (price cap =stable, steady revenue)
    +Better idea of efficiency improvements needed
    +Easier to plan investments
    -Technological change/external shocks=difficult to predict appropriate level of profits,
    output & funds for investment

    = -  


    5  
       2       
        
    4   1 *) 
    *)  ;  *,   
    
    )   
    5= -  1 *c    
    *,  
     -   +
    
    
       (Turn answer on its tail)
    !"Y = -  &4  -  2  2    2- -     2 
             
    
    0"Y )   &= -  
          
     = -   
      = -       
    $"4
    -     1      
        
    %"#  -          
     *  
    
    
    '"#    &
    ("

      
     &           
    9"#           
      

    You might also like