3.2 Business Growth Glossary Flashcards
Diseconomies of Scale
Rising long-run average costs as a business expands beyond its minimum efficient scale.
Economies of Scale
The reductions in average unit costs enjoyed by a business as output increases.
External Economies of Scale
The cost reductions available to all businesses as the industry grows.
Internal Economies of Scale
The cost reductions enjoyed by a single business as it grows.
Minimum Efficient Scale
The output that minimises long-run average costs.
Overtrading
Occurs when a business tries to fund a large volume of new business without sufficient resources. As a results it runs out of cash, and worst it can collapse.
Organisational Size
The classification of how large a business is, normally based on the number of employees, sales turnover or the company’s balance sheet.
Merger
Two or more firms become integrated to form one firm under one management. Mergers can be horizontal, vertical or conglomerate.
Takeover
When one firm gains control over another and becomes the owner.
Organic Growth
Internal or organic growth occurs when a business expands in size by opening new stores, branches, functions or plants.
Retrenchment
The downsizing of a business.
Horizontal Integration
The integration (merger or takeover) of two organisations at the same stage of the production process e.g. the merger of two car manufacturers.
Vertical Integration
The integration of two organisations at different stages of the production process e.g. backward and forward vertical integration
Conglomerate
A form of business growth characterised by the integration of two or more unrelated firms.
Synergy
The combining of two or more activities or businesses creating a better outcome than the sum of the individual parts.
