Business Economics
by James Beer

1. Costs & Revenues
1.1. Fixed cost: one that does not change with output - i.e. patent, capital
1.2. Variable cost: one that changes with output - i.e. energy
2. Profit maximisation
2.1. Normal profit: the level of profit which is just sufficient to keep all factors of production in their present use. It occurs where AC = AR
2.2. Supernormal proft: Anything in excess of normal profit
2.3. Role of profit in an economy: Allocation of factors of production; Signal for market entry; Promotes innovation; Investment; Rewards entrepreneurs for bearing risk; Economic performance indicator
3. Perfect competition
3.1. For it to be perfect competition, there needs to be: Many buyers and sellers; No barriers to entry or exit; Identical products; Perfect information; No externalites; No economies of scale
3.2. Benefits of perfect competition: Lower prices; Low barriers to entry; Lower total profits; Greater entrepreneurial activity; Economic efficiency.
4. Efficiency
4.1. Allocative efficiency: this occurs where goods are produced in line with consumer preferences, technically it's where P=MC
4.2. Productive efficiency: this occurs at the lowest point on the average cost curve
4.3. X efficiency: this exists where firms are not on the average cost curve owing to organisational slack (normally associated with a monopoly)
5. Concentrated markets
5.1. Why do firms grow larger?
5.1.1. Market power motive; Objectives of managers; Profit motive; Economies of Scale; Risk motive
5.2. How do firms grow larger?
5.2.1. Internal Growth (by increasing factors of production) or External Growth (Horizontal integration; Vertical integration; Lateral merger; Conglomerate merger) or Outsourcing (Technological Change; Increased competition; Pressure from financial markets)
6. Price discrimination
6.1. Definition - this occurs when a producer sells an identical product to different buyers at different prices for reasons unrelated to costs.
6.2. 2 main conditions required for discriminatory pricing: Differences in price elasticity of demand and Barriers to prevent "market seepage"
6.3. Advantages: lower prices for some; increased output; reinvested profit
6.4. Disadvantages: Disappearance of consumer surplus; higher prices for others; could be used as a predatory price tactic; inreased profits redistribute income from consumers to producers.
7. Monopoly
7.1. Defined as a firm that has >25% of the market share in that industry
7.2. Barriers to Entry: Protection of the monoply power in the long run
7.2.1. High fixed costs; Economics of Scale; Brand Loyalty; Legal Barriers; Control over the factors of production; Control over retail outlets; Predatory Pricing