3.1

Question 1

reasons for growth

Answer 1

• profit maximisation
• increase market share
• reduce costs
• spread risk
• justify higher salaries

Question 2

divorce of ownership from control

Answer 2

where owners of firms take no part in running their firm

Question 3

principal-agent problem

Answer 3

• agent makes decisions on behalf of principal
• best interest of both don’t always align
• strategies to align interest of shareholders

Question 4

strategies to solve principal-agent problem

Answer 4

• employee share ownership scheme
• long term employment contracts
• long-term stock commitment
• active shareholders

Question 5

not-for-profit

Answer 5

set up to pursue objectives that benefit society
ie eden project

Question 6

profit organisation

Answer 6

operates with the goal of making money

Question 7

private sector

Answer 7

owned and run by private individuals / groups
ie football stadium

Question 8

public sector

Answer 8

owned and financed by the state (government)
ie the BBC

Question 9

reasons for a firm to remain small

Answer 9

?
aim of owners
niche
?

Question 10

organic growth

Answer 10

internal growth of a business caused by buying more capital, taking on more workers or increasing the hours staff work

Question 11

advantages of organic growth

Answer 11

• no conflict of culture
• can respond to changes in market easier
• less risk
• no need for restructuring

Question 12

disadvantages of organic growth

Answer 12

• slower growth
• could decrease competitiveness in the short run
• no new ideas / work practices
• may be come too specialised

Question 13

forward vertical integration

Answer 13

merging with firm further along in the production process

Question 14

advantages forward integration

Answer 14

• retailer - ensure products are best presented
• limit rivals products being stocked

Question 15

disadvantages forward integration

Answer 15

• cost of merger
• may not guarantee sales

Question 16

backwards vertical integration

Answer 16

merging with firm further behind in production process

Question 17

advantages backward integration

Answer 17

• reduce supply costs
• increase supply reliability
• stop rivals getting supplies

Question 18

disadvantages backward integration

Answer 18

• scale of supply may be wrong > inflexibility

Question 19

conglomerate integration

Answer 19

merging or acquiring companies that operate in different industries or markets

Question 20

advantages conglomerate

Answer 20

• diversification
• expand customer base
• increased efficiency
• spread of risk

Question 21

disadvantages conglomerate

Answer 21

• loss of efficiency
• shift away from core business
• clashing cultures

Question 22

horizontal integration

Answer 22

• merging with another firm at the same stage of the production process

Question 23

advantages conglomerate

Answer 23

• economies of scale
• increase market share
• monopoly power
• increased customer base

Question 24

disadvantages conglomerate

Answer 24

• narrow range of goods
• may experience diseconomies of scale
• duplication of resources