1.7 Expanding a Business Flashcards
What are some advantages of expanding your business?
More power in the market
More money
More publicity
What are some drawbacks of expanding your business?
Slower decision making
Employees feel less important - demotivation
Harder to manage
What is ‘economies of scale’?
When the average unit cost of a product falls
What is the formula to calculate unit cost?
Unit costs = total costs / output
If a business grows, why might they experience economies of scale?
Likely to recieve bulk-buy discounts because of how much they need to order
What will happen to a businesses profits when the unit costs fall?
Profits will increase
What is ‘diseconomies of scale’?
When the average unit cost of a product increases
A business’ total costs are £200,000 and with that money, it produces 100,000 units
What is the unit cost?
£200,000 / £100,000 = £2 per unit
What are the two methods of expansion in a business?
Internal (organic) growth
External (inorganic) growth
What is internal/organic growth?
When a business decides to expand on its own
What is a franchise?
A business that gives the right to another person/business to sell goods or services using its name
What is a franchisee?
Someone who purchases a franchise and has a license to use the company’s name
What are some advantages of a franchise?
The business will gain more publicity
Low risk of failure for the franchisee
Easier to make money
What are some disadvantages of a franchise?
Expensive to set up and manage for the franchisee
Loss of some control
What is E-commerce?
Any transaction that takes place online
