External growth usually involves a merger or takeover .

Internal growth occurs when a business decides to expand its own activities by launching new
products and/or entering new markets

Economies of scale refer to the cost advantage arises due to the inverse relationship between the per-
unit fixed cost and the quantity produced. The greater the quantity of output produced, the lower the
per-unit fixed cost. Economies of scale also result in a fall in average variable costs (average non-fixed
costs) with an increase in output.

Internal economies of scale refer to economies that are unique to a firm

External economies of scale refers to economies enjoyed by the entire industry.

Types of internal economies of scale:

Purchasing/Marketing:

 Bulk buying, with volume discounts causing lower average costs

 Advertising costs can be spread across products.

Technical/Production:

 Firms can use technology over higher capacity & for mass production lowering cost per unit
 Large scale firms can use techniques that are inaccessible to small firms

Risk bearing economies:

 Firms able to spread the risk of failure by increasing number of products i.e greater product
diversification

Managerial:

 More specialized management structure therefore efficiency increases and lower avg costs

Financial:

 Larger firms have better lending terms & lower interest rates
 Easier to raise large capitals

In a perf competitive market, firm can earn abnormal profits in the short run only and normal profits in
the long run.

Per comp: low costs of entry & exit, large no of firms & consumers, perfect info, firms price takers,
homogenous goods

Monopoly: very few no of firms, differentiated goods, high costs if entry & exit, imperfect info, firms
price makers

In a monopoly, specific tax will cause the marginal cost to rise by the amount of tax.
Limit pricing used to restrict new potential entrants from joining the market

Predatory pricing used to drive out existing firms from the market

Internal growth occurs when a business decides to expand its productive capacity, opening new stores,
entering new markets.

External growth focuses on the areas including capturing new customers, acquiring another business,
merging with another competitor

E.C = S.C – P.C (External cost = Social cost – Private cost)

E.B = S.B – P.B (External benefit = Social benefit – Private benefit)

Demand for labour curve (MRP) can only shift if theres a change in the price or MPP in perf comp

Demand for labour curve (MRP) can only shift if theres a change in the MR or MPP in imperf comp

Economic Rent: income earned on top of minimum income.

Transfer earnings: income necessary to retain an employee.

HDI = LEI + EI + GDP/CAPITA

WITHDRAWALS = S + T + M

INJECTIONS = I + G + X

We don’t add pensions & unemployemnet benefits in national income

Keynesian guys love fiscal policy but also weighs monary policies how good or bad they are. But usually
diss the monetary policies. He says how good the fiscal policy is and how bad the monetary policy is.

The accelerator theory is an economic postulation whereby investment expenditure increases when
either demand or income increases.

Horizontal
Vertical Integration(rightone)
Integration(leftone)

When two firms combine, whose Vertical Integration is when a

products and production level is same, firm takes over another firm or
Meaning
then this is known as Horizontal firms, that are at different stage
Integration. on the same production path.
Price fall: S.E: +ve for all. I.E: +ve for normal. T.E: +ve for normal & inferior goods

Price rise: S.E: -ve for all, I.E: -ve for normal good. T.E: -ve for normal &inferior

Allocatively efficient: P = MC
Sales Maximisation: AC = AR

Sales Revenue Maximisation: MR = 0

Net welfare = Social Benefit – Social Cost

Normal Profit: AC = AR

IF AVG TOTAL COST GOES ABOVE AR THEN FIRMS AIM FOR LOSS MINIMISATION WHICH IS @ MC = MR.

Unit Cost minimization: ATC is minimum

Multiplier = Change in income / Change in investment

Substitution effect is when we move along the indifference curve.

Means-tested social benefits refer to benefits where entitlement is explicitly or implicitly conditional
on the beneficiary's income/wealth.

Key Differences
Keynesian Monetarist
Government should intervene to
Control of Money in circulation should be
manipulate demand for goods and
Economy regulated by the Federal Reserve
services
Control the money supply by
Adjust government spending to adjust
Inflation increasing or decreasing it to control
demand and control inflation
inflation
Emphasizes reducing unemployment
Emphasizes reducing inflation more
more than reducing inflation; when
than keeping unemployment low;
Unemployment people increase saving and reduce
wages are likely to adjust naturally to
spending, the government may need to
prevent real wage unemployment
spend
Government spending causes rather
than controls inflation and may crowd
Views of Each It takes too long for the economy to
out spending by the private sector
Other adjust to changes in monetary policies
(which is preferred over public
spending)

In Perfect Markets: MRP = MP * P

In Imperfect Markets: MRP = MP * MR
When Reserve Ratio increases, Money Supply Falls and Vice Versa
Issuing Bonds causes Money Supply to fall. Purchasing Bonds causes Money
Supply to increase
When Govt borrows from commercial bank, MS rises’
MV = PY (Money Supply * Velocity = Price * Income)