The Principal Agent Problem occurs when there is a conflict in interest between ‘the principal’, and ‘the agent’. The principal refers to the individual that delegates authority and responsibility to the agent. So the agent acts on behalf of the principal. The problem then arises where the interests of the agent and the principal do not align.
Asymmetric information or information asymmetry is where one party in a transaction has more information than the other. In other words, the seller of a good may know more about its true worth than the consumer of that good.
In economics, an externality refers to a cost or benefit that is imposed onto a third party. These can come in the form of ‘positive externalities’ — that create a benefit to a third party. Or, ‘negative externalities’ — that create a cost to a third party.
First-degree price discrimination is where a business charges each customer the maximum they are willing to pay. This price can vary from customer to customer as the business charges the very maximum in order for the customer to purchase their goods.
Price Discrimination is a strategy businesses use to maximise revenue. Sellers charge customers different prices based on the maximum they think a customer is willing to pay.
A market that has Monopolistic structure can be seen as a mixture between a monopoly and perfect competition. Whilst monopoly and perfect competition are at completely different ends of the spectrum; monopolistic competition is somewhere in between.
When looking at the causes of monopoly, it is important to first define what it is. The term monopoly originates from the Ancient Greek language. Monos, meaning “sole”. And Poleo, meaning “sell”. Roughly translated, it means “Sole Seller”. Any person or business who is the only seller in the market could be classified as having a monopoly.
Supply chain management is the management of goods and services that a business needs to turn raw materials into the final product. This involves managing the raw materials coming into the firm, as well as the distribution of the product being sold by the firm.
So what are Diseconomies of Scale? It is an economic term that defines the trend for average costs to increase alongside output. At a specific point in production, the process starts to become less efficient. In other words, it costs more to produce an additional unit of output.
In economic jargon, diseconomies of scale occur when average unit costs start to increase. The graph below illustrates that at a point Q1, average costs start to increase.
Porters 5 forces is a method used to breakdown and understand the competitive nature of an industry or business. It does so by looking at five main factors – threat of substitutes, threat of new entrants, bargaining power of buyers, bargaining power of suppliers, and competitive rivalry.
