1.7 Expanding a Business

Question 1

What are the two business methods of expansion?

Answer 1

• Internal growth (when a business gets bigger by selling more of its products.
• External growth (when a business gets bigger by joining or buying other businesses.

Question 2

What are the advantages of selling a franchise?

Answer 2

• Can grow quickly.

- The franchisee will be motivated as if they are running their own business.

Question 3

What are some disadvantages of selling a franchise?

Answer 3

• Lose some control.

- Have to share profits.

Question 4

What are some advantages of buying a franchise?

Answer 4

• Established brand.

- Learn from other franchises.

Question 5

What are the disadvantages of buying a franchise?

Answer 5

• Have to share profits.

- Sales may suffer if another franchisee gets a bad reputation.

Question 6

Define economies of scale.

Answer 6

Economies of scale occurs when a business’s unit costs of production fall as its output rises and the business expands.

Question 7

Define diseconomies of scale.

Answer 7

Diseconomies of scale occur when the cost per unit increases as a business expands.

Question 8

What is the equation for unit cost?

Answer 8

Unit costs = total costs divide by output