What are the horizontal boundaries of the firm
They determine the quantity and the variety of goods and services the firm produces
When does economies of scale exist? What is an outcome of Economies of scale?
They exist if costs per unit decrease with increasing output
Outcome:
spreading fix costs such as R&D / lease of the fabric / … (wird auf mehrere Einheiten der produzierten Menge aufgeteilt)
Draw an L-Shaped Average costs function and highlights the MES (minimum efficient scale)
What is the key learning of Economies of Scope
They exist when it is cheaper for a firm to produce the goods “X” and “Y” than one firm to produce “X” and an other produce “Y”
Name 5 possible firm-advantages of economies of Scale and Scope
spreading of fixed costs (scale)
Purchasing (scale)
Mengenrabatt beim Einkauf
Advertising costs (scope)
Man kann gleichzeitig für mehrere Produkte Werbung machen (Coca Cola kann für Zero und normale Cola gleichzeitig Werbung machen)
Saving on inventories (scope)
Unternehmen können Lagerflächen für mehrere Produkte gleichzeitig nutzen
What are indivisibilities
Indivisibilities: Inputs cannot be scaled down below a certain minimum. They lead to fixed costs and fixed costs lead to economies of scale and scope
Explain the Short-run average costs vs. Long-run average costs
Short-run: You cannot change your SAC
Long-run: You can change your SAC, which means fixed costs can not be seen as fixed
What does the learning curve describe and what is it?
The learning curve reflects how efficiency improves with experience
if a firm produces more units, they become more efficient which leads to reduced costs per unit
Name the three variants of mergers & acquisition
Horizontal Merges
Merges between competitors in the same market
Vertical Merges
Merges between firms of different levels of distribution or production, this means one firm is the supplier of the other
Conglomerate Merges
Merges which are not horizontal or vertical, which is the case if the firms operate in different industries
Name motives for mergers & acquisition
shareholder gains
Efficiency gains
Synergy gains
Cost savings
Increasing market power
Managerial gains
Empire building
Personal portfolio preferences (diversify the portfolio)
What strategic advantages does horizontal boundaries have or more specific: What strategic advantages does a firm have if they have a big variety of products?
market power
Larger firms be able to have some degree of monopoly power and they can determine the terms of competition for some other firms in the industry
Barriers to entry are not as high
They are hard to threaten and to challenge
Lower costs
They be able to produce with lower costs than smaller firms without a big portfolio of products
Why does the learning curve implicate dropping the sale-price to the marginal cost level?
Firms may strategely produce more in the short term (price drops) to move down the learning-curve and reduce future costs
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