3.1/3.2 business growth/objectives

Question 1

explain why some firms remain small

Answer 1

-retain brand prestige
-small market size
-lack of economies of scale

Question 2

explain why some firms grow

Answer 2

-increase revenue and market share
-principal agent problem
-economies of scale

Question 3

what are some constraints on business growth

Answer 3

-size of the market - may sell niche good
-lacking access to finance - SME’s find it hard to borrow funds
-gov. regulation - CMA may block mergers to keep competition

Question 4

what is the difference between organic and external growth

Answer 4

organic growth uses profits made by the business whereas external growth is a takeover or merger

Question 5

What is horizontal intergration

Answer 5

when 2 businesses in the same place in the supply chain and sell the same good merge

Question 6

what is forward/backward integration

Answer 6

Forward - buying a business in the same industry but a level down in the supply chain

Backward - buying a business in the same industry but one level up in the supply chain

Question 7

what is conglomerate integration

Answer 7

company buys a firm in a completely unrelated industry

Question 8

what are the advantages of internal growth

Answer 8

-less risk
-builds business strength
-allows growth at a sensible rate
-dont have to borrow money

Question 9

what are disadvantages of internal growth

Answer 9

-growth depends on overall market
-slower growth

Question 10

explain advantages of horizontal intergration

Answer 10

-economies of scale
-increased market share + pricing power
-reduced competition

Question 11

explain advantages of forward/backward intergration

Answer 11

-control of the supply chain
-improved access to raw mats
-remove suppliers from rivals

Question 12

explain advantages of conglomerate intergration

Answer 12

-spread firms risks
-good if there is little scope for growth
-greater growth for cross selling

Question 13

explain disadvantages of external growth

Answer 13

-costs tend to be greater than internal growth
-problems of valuing a business
-diseconomies of scale
-alienation of customers

Question 14

explain reasons for demergers

Answer 14

-diseconomies of scale
-value of single firms is greater than merged firms
-differing business objectives

Question 15

what is profit maximisation

Answer 15

goods are priced at the point which achieves the highest profits (MR=MC)

Question 16

what is revenue maximisation

Answer 16

operating at the lowest cost to maximise revenue (MR=0)

Question 17

what is sales maximisation

Answer 17

setting at the lowest possible price to maximise sales (AC=AR)