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Unit 3: Business Behaviour

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  1. 3.3.1 - Types and sizes of businesses

    1. Types of businesses:; private sector organisations; state-owned enterprises (public sector); for-profit and not-for-profit organisations; co-operatives; joint ventures.

    2. The size of businesses:; SMEs (small- and medium-size enterprises); large corporations.

    3. How businesses grow:; organic growth; merger/takeover:; forward vertical integration; backward vertical integration; horizontal integration; conglomerate integration.

    4. Advantages and disadvantages of each type of merger/takeover.

    5. Constraints on business growth:; size of market; access to finance; owner objectives; government regulation and bureaucracy.

    6. Reasons some firms tend to remain small and others grow.

    7. Impact of growth of firms on businesses, workers and consumers.

    8. Demergers:; reasons for demergers; impact of demergers on businesses, workers and consumers.

    9. Different business objectives: objectives; profit maximisation; revenue maximisation; sales volume maximisation.; behavioural theories: satisficing.

    10. The significance of the divorce of ownership from control for business objectives: the principal-agent problem.

    11. Formulae for different business objectives:; profit maximisation; revenue maximisation; sales volume maximisation.

  2. 3.3.2 - Revenue, costs and profits

    1. Formulae to calculate and understand the relationship between:; total revenue; average revenue; marginal revenue.

    2. Price elasticity of demand and its relationship to revenue concepts, including calculations.

    3. Derivation of short-run cost curves from the assumption of diminishing marginal productivity.

    4. The law of diminishing returns.

    5. Formulae to calculate and understand the relationship between:; total cost; total fixed cost; total variable cost; average (total) cost; average fixed cost; average variable cost; marginal cost.

    6. The relationship between:; marginal product and marginal costs; average products and average cost; total product and total cost; short-run and long-run costs.

    7. The relationship between long-run cost curves and diseconomies of economies/diseconomies of scale. scale

    8. Minimum efficient scale.

    9. Distinction between internal/external economies of scale.

    10. Sources of internal economies of scale:; financial; technical; managerial; marketing; purchasing; risk bearing.

    11. Sources of external economies of scale:; availability of skilled labour; access to transport links; sharing knowledge.

    12. Sources of diseconomies of scale:; communication problems; coordination problems; X-inefficiency.

    13. The distinction between normal profit, supernormal profit and losses.

    14. Short-run and long-run shutdown points.

  3. 3.3.3 - Market structures and contestability

    1. 3.3.3.1aconcepts of: • allocative efficiency • productive efficiency • dynamic efficiency •

      The concepts of:; allocative efficiency; productive efficiency; dynamic efficiency; X-inefficiency; efficiency/inefficiency in different market structures.

    2. 3.3.3.2aCalculation of n-firm concentration ratios. ratio

      Calculation of n-firm concentration ratios. ratio

    3. 3.3.3.2bsignificance of concentration ratios

      The significance of concentration ratios.

    4. 3.3.3.3aAssumptions of perfect competition. competition

      Assumptions of perfect competition. competition

    5. 3.3.3.3bProfit-maximising equilibrium in the short run and long run

      Profit-maximising equilibrium in the short run and long run.

    6. 3.3.3.3cshort-run shutdown point

      The short-run shutdown point.

    7. 3.3.3.3dProductive and allocative efficiency in the short run and long run

      Productive and allocative efficiency in the short run and long run.

    8. 3.3.3.4aAssumptions of monopolistic competition. competition

      Assumptions of monopolistic competition. competition

    9. 3.3.3.4bTypes of product differentiation: • physical - product features • marketing -

      Types of product differentiation:; physical - product features; marketing - advertising, packaging; distribution - shop, online, telephone.

    10. 3.3.3.4cProfit-maximising equilibrium in the short run and long run

      Profit-maximising equilibrium in the short run and long run.

    11. 3.3.3.4dProductive and allocative efficiency in the short run and long run

      Productive and allocative efficiency in the short run and long run.

    12. 3.3.3.5aAssumptions of oligopoly

      Assumptions of oligopoly.

    13. 3.3.3.5bBarriers to entry and exit: • economies of scale • limit pricing • patents • branding •

      Barriers to entry and exit:; economies of scale; limit pricing; patents; branding; sunk costs; legal.

    14. 3.3.3.5cInterdependence of firms: • simple game theory - two firm/two outcome model • reasons

      Interdependence of firms:; simple game theory - two firm/two outcome model; reasons for collusive and non-collusive behaviour; cartels; price leadership; price wars.

    15. 3.3.3.5dCosts and benefits of collusion to producers, consumers, workers and governments

      Costs and benefits of collusion to producers, consumers, workers and governments.

    16. 3.3.3.5ePrice competition: • price wars • predatory pricing • limit pricing

      Price competition:; price wars; predatory pricing; limit pricing.

    17. 3.3.3.5fNon-price competition: (continued) • advertising and branding • quality • endorsement •

      Non-price competition: (continued); advertising and branding; quality; endorsement; product placement; after-sales service.

    18. 3.3.3.5gCosts and benefits of price and non-price competition to firms, consumers, employees

      Costs and benefits of price and non-price competition to firms, consumers, employees and suppliers.

    19. 3.3.3.6aAssumptions of monopoly

      Assumptions of monopoly.

    20. 3.3.3.6bBarriers to entry and exit

      Barriers to entry and exit.

    21. 3.3.3.6cProfit-maximising equilibrium

      Profit-maximising equilibrium.

    22. 3.3.3.6dCosts and benefits of monopoly to firms and consumers

      Costs and benefits of monopoly to firms and consumers.

    23. 3.3.3.6econcept of 'natural monopoly' and its implications

      The concept of 'natural monopoly' and its implications.

    24. 3.3.3.6fConditions necessary for third-degree price discrimination

      Conditions necessary for third-degree price discrimination.

    25. 3.3.3.6gCosts and benefits of price discrimination to firms and consumers

      Costs and benefits of price discrimination to firms and consumers.

    26. 3.3.3.6hProductive, allocative and dynamic efficiency

      Productive, allocative and dynamic efficiency.

    27. 3.3.3.7aAssumptions and conditions for a monopsony to operate

      Assumptions and conditions for a monopsony to operate.

    28. 3.3.3.7bCosts and benefits of a monopsony to firms, consumers and employees

      Costs and benefits of a monopsony to firms, consumers and employees.

    29. 3.3.3.8aCharacteristics of contestable markets

      Characteristics of contestable markets.

    30. 3.3.3.8bImplications of contestable markets for behaviour of firms on: • profitability •

      Implications of contestable markets for behaviour of firms on:; profitability; pricing decisions (limit pricing).

    31. 3.3.3.8cCosts and benefits of contestability for firms and consumers

      Costs and benefits of contestability for firms and consumers.

    32. 3.3.3.8dsignificance of sunk costs for contestability

      The significance of sunk costs for contestability.

  4. 3.3.4 - Labour markets

    1. Factors that influence the demand for labour to a particular labour occupation:; demand for the final product (labour as a derived demand); productivity of labour; price of the product; wage rate relative to price of capital.

    2. Factors that influence the elasticity of demand for labour.

    3. Factors that influence the supply of labour to a particular labour occupation:; size of population; net migration; income tax rates; level of welfare benefits; government regulations; trade unions.

    4. Factors that influence the elasticity of supply of labour.

    5. Labour market equilibrium. of wage rates in

    6. Causes of changes in the equilibrium wage rate and quantity of competitive and labour as a result of shifts in demand curves and supply curves. non-competitive

    7. Wage setting in the public sector/state-owned enterprises.

    8. Causes and consequences of the geographical immobility of the labour market labour.

    9. Causes and consequences of the occupational immobility of labour.

  5. 3.3.5 - Government intervention

    1. The case for government intervention. intervention in

    2. Measures to control monopolies and mergers: product markets; price regulation; profit regulation; quality standards; performance targets; referral to regulatory authorities; legislation to control mergers and takeovers.

    3. Measures to promote competition and contestability:; tax incentives and grants to promote small businesses and FDI; deregulation; privatisation; competitive tendering for public sector contracts; trade liberalisation.

    4. Measures to protect suppliers and employees:; local sourcing of raw materials and components; employment legislation to protect workers from; exploitation; barriers to entry of foreign firms; restrictions on the monopsony power of firms; nationalisation.

    5. The impact of each measure on:; price; profit; efficiency; quality; choice.

    6. Limits to government intervention:; regulatory capture; asymmetric information/information gaps; inadequate resources; lack of regulatory power.

    7. The case for government intervention. intervention in

    8. Evaluate maximum and minimum wage controls, direct taxes, measures addressing labour immobility, and measures reducing discrimination and exploitation.