1.5 growth and evolution

Question 1

define economies of scale

Answer 1

as output increases the average cost per unit decreases

Question 2

define diseconomies of scale

Answer 2

as output increases the average cost per unit increases

Question 3

what are the pros of a business wanting to grow internally?

Answer 3

• easier to control and manage
• cheap

Question 4

what are the cons of a business wanting to grow internally?

Answer 4

• slow, time consuming
• decreases in dividends for shareholders = disappointment

Question 5

define dividends

Answer 5

the distribution of a company’s earnings to its shareholders and is determined by the company’s board of directors

Question 6

what are the 4 types of external growth methods?

Answer 6

1. merger and acquisition
2. takeover
3. joint ventres
4. strategic alliances
5. franchises

Question 7

what are mergers and acquisitions?

Answer 7

coming together of 2 or more organisations

Question 8

what are takovers?

Answer 8

a company purchasing the majority stake in another company, which is a hostile move: comma

Question 9

what are joint ventres?

Answer 9

2 or more organisations agreeing to work together on a new project

Question 10

what are strategic alliances?

Answer 10

2 or more organisation agreeing to work together for mutual benefits

Question 11

what are the 2 types of franchises?

Answer 11

1. franchisor
2. franchisee

Question 12

define franchise

Answer 12

exchanging a company’s royalty for a % of profit per month

Question 13

define royalty

Answer 13

fees that one party pays to another in exchange for the use of their intellectual property, land or rights

Question 14

what is the difference between franchisor and franchisee?

Answer 14

franchisor is the mother company who licenses the use of the trade-mark and business model for the franchisee. the franchisee is the business that uses the licensed trademark