3.1.1 - size and types of firms

Question 1

Impacts for demerger?

Answer 1

1.Workers will lose jobs
2.More efficent- focus on core business
3.Loss of EOS

Question 2

Reasons for demerger?

Answer 2

1.Lack of synergies- each company not bennefitting eachother
2.Focuss on companie goals- can focus on core business so they can perform better

Question 3

What are demergers?

Answer 3

One business broke into 2 or more companies e.g. pepsi and KFC

Question 4

Constarints of business growth?

Answer 4

1.Size of market- cant mass produce without demand so less EOS
2.Acess to finance- retain profit or loan? in order to innovate
3.Owner objectives- may be happy with current profit so risk is not worth it
4.Regulations - Gov wont let you grow into monopoly

Question 5

Disadvantages of conglomerate intergration?

Answer 5

Not experts in new market

Question 6

Benefits of conglomerate intergration?

Answer 6

1.Good when current market is failing or has slow growth
2.Less risk if market fails
3.EOS

Question 7

What is conglomerate intergration?

Answer 7

Intergration between 2 firms with no obvious correlation

Question 8

Disadvantages of horizontal intergration?

Answer 8

Increase risk- “eggs in one basket”- if market falls they ahve no backup

Question 9

Benefits of horizontal intergration?

Answer 9

1.Reduce competition
2.Increase in market share
3.Rationalise- get rid of people doing the same job; cheaper costs
4.EOS

Question 10

What is horizontal intergration?

Answer 10

2 firms in the same stage in the smae market

Question 11

Disadvantages of verticle intergration?

Answer 11

Not experts in new market

Question 12

Benefits of verticle intergration?

Answer 12

1.Increase potential for profit
2.More relaibility- suppliers will supply on time or firms will pay
3.EOS

Question 13

What is verticle intergration?

Answer 13

Intergration in the same insustry but at different stages e.g. suppliers and sellers.

Question 14

Disadvantages of organic growth?

Answer 14

1.Might not be able to acess what they want- For example- they wont be able to join a new international market
2.Slow growth
3.Difficult to think of new ideas and innovate

Question 15

Beneits of organic growth?

Answer 15

1.Less expensive
2.Less time consuming
3.Keep full control

Question 16

What is organic growth?

Answer 16

Naturual growth from inside the business via increasing output

Question 17

Differenece between public and private sector?

Answer 17

Public sector- government run.

Private sector- run by groups of/or indivuals

Question 18

Principle agent problem?

Answer 18

2 agents of the business dissagree.

E.G. employee vs owner; wage rate

Question 19

Reasons to grow?

Answer 19

1.EOS
2.More revenue -> larger profit
3.Increase market share- more control over market