3.1 Business Growth

Question 1

Reasons for firms to grow

Answer 1

Stronger market power
Reduce costs through economies of scale
Large firms often have easier access to finance
Shareholders want higher profits

Question 2

Reason why firms stay small

Answer 2

unable to access finance
to avoid diseconomies of scale
offer personalised services/focuses on customer relationships
profit max may not be a goal

Question 3

What is the Principle-Agent problem

Answer 3

when one group puts their priorities in front of another group

Question 4

Public sector organisations

Answer 4

Organisations owned and controlled by the government
Eg. BBC and Channel 4

Question 5

Private sector organisation definition and objective

Answer 5

Owned and controlled by individuals
to profit maximise-> more productivity

Question 6

Not-for-profit organisation

Answer 6

not looking profit maximisation, but to meet customer needs

Question 7

Organic growth definition and examples

Answer 7

growth created from within the business

new technology
product diversification
opening a new store

Question 8

Pros and cons of organic growth 3,3

Answer 8

P-less risky
-avoids diseconomies of scale
-pace of growth is manageable

C-can be slow growth
-access to finance may be limited
-may not benefit from economies of scale

Question 9

Inorganic growth definition and its 3 ways

Answer 9

growth taken place from outside the business

Vertical Integration
Horizontal Integration
Conglomerate

Question 10

Vertical integration pros and cons 2,2

Answer 10

P-reduces cost of production as no middle man
lower costs make the firm more competitive
greater control over production process->quality can be managed

C-culture clash between 2 merging firms
-little expertise new firm can decrease efficiency

Question 11

Demerger definition and reasons for

Answer 11

When a firm splits up into two or sells off section

Reduce diseconomies of scale
increased business focus
increased dividends as demergers create extra revenue

Question 12

Impact of demergers on firms

Answer 12

opportunity for narrow focus
increased efficiency and lower unit costs
increased revenue for the demerged business

Question 13

Impacts of demergers on employees

Answer 13

loss of jobs
reduced friction from culture clashes
smaller workforce->more promotion opportunities->increased motivation

Question 14

Impact of demergers on consumers

Answer 14

better quality and customer service
lower prices due to better efficiency
if unsuccessful, could reduce quality and customer service