Unit 3: Business Behaviour
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3.3.1 - Types and sizes of businesses
3.3.1.1aTypes of businesses: • private sector organisations • state-owned enterprises (public
Types of businesses:; private sector organisations; state-owned enterprises (public sector); for-profit and not-for-profit organisations; co-operatives; joint ventures.
3.3.1.2asize of businesses: • SMEs (small- and medium-size enterprises) • large corporations
The size of businesses:; SMEs (small- and medium-size enterprises); large corporations.
3.3.1.2bbusinesses grow: • organic growth • merger/takeover: • forward vertical integration •
How businesses grow:; organic growth; merger/takeover:; forward vertical integration; backward vertical integration; horizontal integration; conglomerate integration.
3.3.1.2cAdvantages and disadvantages of each type of merger/takeover
Advantages and disadvantages of each type of merger/takeover.
3.3.1.2dConstraints on business growth: • size of market • access to finance • owner objectives
Constraints on business growth:; size of market; access to finance; owner objectives; government regulation and bureaucracy.
3.3.1.2eReasons some firms tend to remain small and others grow
Reasons some firms tend to remain small and others grow.
3.3.1.2fImpact of growth of firms on businesses, workers and consumers
Impact of growth of firms on businesses, workers and consumers.
3.3.1.2gDemergers: • reasons for demergers • impact of demergers on businesses, workers and
Demergers:; reasons for demergers; impact of demergers on businesses, workers and consumers.
3.3.1.3aDifferent business objectives: objectives • profit maximisation • revenue maximisation
Different business objectives: objectives; profit maximisation; revenue maximisation; sales volume maximisation.; behavioural theories: satisficing.
3.3.1.3bsignificance of the divorce of ownership from control for business objectives: the
The significance of the divorce of ownership from control for business objectives: the principal-agent problem.
3.3.1.3cFormulae for different business objectives: • profit maximisation • revenue
Formulae for different business objectives:; profit maximisation; revenue maximisation; sales volume maximisation.
3.3.2 - Revenue, costs and profits
3.3.2.1aFormulae to calculate and understand the relationship between: • total revenue •
Formulae to calculate and understand the relationship between:; total revenue; average revenue; marginal revenue.
3.3.2.1bPrice elasticity of demand and its relationship to revenue concepts, including
Price elasticity of demand and its relationship to revenue concepts, including calculations.
3.3.2.2aDerivation of short-run cost curves from the assumption of diminishing marginal
Derivation of short-run cost curves from the assumption of diminishing marginal productivity.
3.3.2.2blaw of diminishing returns
The law of diminishing returns.
3.3.2.2cFormulae to calculate and understand the relationship between: • total cost • total
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.
3.3.2.2drelationship between: • marginal product and marginal costs • average products and
The relationship between:; marginal product and marginal costs; average products and average cost; total product and total cost; short-run and long-run costs.
3.3.2.3arelationship between long-run cost curves and diseconomies of economies/diseconomies of
The relationship between long-run cost curves and diseconomies of economies/diseconomies of scale. scale
3.3.2.3bMinimum efficient scale
Minimum efficient scale.
3.3.2.3cDistinction between internal/external economies of scale
Distinction between internal/external economies of scale.
3.3.2.3dSources of internal economies of scale: • financial • technical • managerial •
Sources of internal economies of scale:; financial; technical; managerial; marketing; purchasing; risk bearing.
3.3.2.3eSources of external economies of scale: • availability of skilled labour • access to
Sources of external economies of scale:; availability of skilled labour; access to transport links; sharing knowledge.
3.3.2.3fSources of diseconomies of scale: • communication problems • coordination problems •
Sources of diseconomies of scale:; communication problems; coordination problems; X-inefficiency.
3.3.2.4adistinction between normal profit, supernormal profit and losses
The distinction between normal profit, supernormal profit and losses.
3.3.2.4bShort-run and long-run shutdown points
Short-run and long-run shutdown points.
3.3.3 - Market structures and contestability
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.
3.3.3.2aCalculation of n-firm concentration ratios. ratio
Calculation of n-firm concentration ratios. ratio
3.3.3.2bsignificance of concentration ratios
The significance of concentration ratios.
3.3.3.3aAssumptions of perfect competition. competition
Assumptions of perfect competition. competition
3.3.3.3bProfit-maximising equilibrium in the short run and long run
Profit-maximising equilibrium in the short run and long run.
3.3.3.3cshort-run shutdown point
The short-run shutdown point.
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.
3.3.3.4aAssumptions of monopolistic competition. competition
Assumptions of monopolistic competition. competition
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.
3.3.3.4cProfit-maximising equilibrium in the short run and long run
Profit-maximising equilibrium in the short run and long run.
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.
3.3.3.5aAssumptions of oligopoly
Assumptions of oligopoly.
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.
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.
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.
3.3.3.5ePrice competition: • price wars • predatory pricing • limit pricing
Price competition:; price wars; predatory pricing; limit pricing.
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.
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.
3.3.3.6aAssumptions of monopoly
Assumptions of monopoly.
3.3.3.6bBarriers to entry and exit
Barriers to entry and exit.
3.3.3.6cProfit-maximising equilibrium
Profit-maximising equilibrium.
3.3.3.6dCosts and benefits of monopoly to firms and consumers
Costs and benefits of monopoly to firms and consumers.
3.3.3.6econcept of 'natural monopoly' and its implications
The concept of 'natural monopoly' and its implications.
3.3.3.6fConditions necessary for third-degree price discrimination
Conditions necessary for third-degree price discrimination.
3.3.3.6gCosts and benefits of price discrimination to firms and consumers
Costs and benefits of price discrimination to firms and consumers.
3.3.3.6hProductive, allocative and dynamic efficiency
Productive, allocative and dynamic efficiency.
3.3.3.7aAssumptions and conditions for a monopsony to operate
Assumptions and conditions for a monopsony to operate.
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.
3.3.3.8aCharacteristics of contestable markets
Characteristics of contestable markets.
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).
3.3.3.8cCosts and benefits of contestability for firms and consumers
Costs and benefits of contestability for firms and consumers.
3.3.3.8dsignificance of sunk costs for contestability
The significance of sunk costs for contestability.
3.3.4 - Labour markets
3.3.4.1aFactors that influence the demand for labour to a particular labour occupation: •
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.
3.3.4.1bFactors that influence the elasticity of demand for labour
Factors that influence the elasticity of demand for labour.
3.3.4.2cFactors that influence the supply of labour to a particular labour occupation: • size
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.
3.3.4.2dFactors that influence the elasticity of supply of labour
Factors that influence the elasticity of supply of labour.
3.3.4.3aLabour market equilibrium. of wage rates in
Labour market equilibrium. of wage rates in
3.3.4.3bCauses of changes in the equilibrium wage rate and quantity of competitive and labour
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
3.3.4.3cWage setting in the public sector/state-owned enterprises
Wage setting in the public sector/state-owned enterprises.
3.3.4.4aCauses and consequences of the geographical immobility of the labour market labour
Causes and consequences of the geographical immobility of the labour market labour.
3.3.4.4bCauses and consequences of the occupational immobility of labour
Causes and consequences of the occupational immobility of labour.
3.3.5 - Government intervention
3.3.5.1acase for government intervention. intervention in
The case for government intervention. intervention in
3.3.5.1bMeasures to control monopolies and mergers: product markets • price regulation • profit
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.
3.3.5.1cMeasures to promote competition and contestability: • tax incentives and grants to
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.
3.3.5.1dMeasures to protect suppliers and employees: • local sourcing of raw materials and
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.
3.3.5.1eimpact of each measure on: • price • profit • efficiency • quality • choice
The impact of each measure on:; price; profit; efficiency; quality; choice.
3.3.5.1fLimits to government intervention: • regulatory capture • asymmetric
Limits to government intervention:; regulatory capture; asymmetric information/information gaps; inadequate resources; lack of regulatory power.
3.3.5.2acase for government intervention. intervention in
The case for government intervention. intervention in
3.3.5.2bGovernment intervention in labour markets
Evaluate maximum and minimum wage controls, direct taxes, measures addressing labour immobility, and measures reducing discrimination and exploitation.