3.2.1 growth

Question 1

reasons for businesses wanting to grow

Answer 1

increase profits
achieve economies of scale
increased market power
increased market share and brand recognition

Question 2

define economies of scale

Answer 2

as a business grows in size it will be able to gain competitive advantage in numerous ways
growth enables a business to benefit from economies of scale

Question 3

ways of gaining competitive advantage - economies of scale

Answer 3

having more funds to buy stock - get better deals buying in bulk
having more power
having more funds to pay for specialist staff
having a better reputation so banks are more willing to lend

Question 4

Eos theory

Answer 4

occurs when unit costs or average costs fall as a result as an increase in the level of output of the business
the more they make it the cheaper it gets per item

Question 5

benefits of economies of scale

Answer 5

can lead to higher profit margins
more funds for investment or even for giving shareholders higher dividends
easier to attract future investment

Question 6

internal Eos

Answer 6

arise as the scale of production expands
financial, managerial, purchasing and technical economies

Question 7

external Eos

Answer 7

arise outside the business
the whole industry expands

Question 8

marketing economies of scale

Answer 8

every part of marketing has a cost
as a business grows they can spread the cost of marketing over a wide range of products and sales

Question 9

advantages of marketing eos

Answer 9

large firms can attract specialist buyers who dont waste money buying stock which won’t sell
have specialist sells / marketing staff to ensure goods sell

Question 10

risk bearing

Answer 10

bigger companies can spread their risk by investing in more products and more markets

Question 11

define financial Eos

Answer 11

large firms can benefit from cheaper loans and wider sources of cheap finance

Question 12

technical eos

Answer 12

advantages a large firm has when it comes to the production process
can employ specialist labour and capital which stimulates productivity and reduces average costs

Question 13

managerial eos

Answer 13

large firms have the money / resources to attract the most productive / efficient / specialist managers who make the most effective business decisions and increase efficiency over time

Question 14

risk-bearing eos

Answer 14

large firms benefit from having wider, more diversified product range
they are better able to withstand the risk of a fall in demand for one good or service

Question 15

bargaining power of suppliers

Answer 15

limit power of suppliers by looking for new suppliers
backward vertical integration and merge or takeover the supplier

Question 16

bargaining power of customers

Answer 16

make it too expensive for customers to switch
forward vertically integrate

Question 17

problems arising from growth

Answer 17

diseconomies of scale
internal communication
overtrading

Question 18

minimum efficient scale

Answer 18

most efficient point of production
bottom of the average cost curve

Question 19

lack of motivation

Answer 19

workers in large companies may feel demotivated
can lead to powerlessness and alienation
increased absenteeism and lateness

Question 20

lock of co-ordination

Answer 20

new staff, new products and new premises have to be co-ordinated
resources need to be controlled so operations run smoothly
workers may need monitoring - adds costs
may need more managers - increases average cost per unit

Question 21

poor internal communication

Answer 21

large firm = necessary to use written forms of communication more frequently
less personal = less motivating
slower communication = long chains in command

Question 22

calculating eos

Answer 22

calculate total costs of production for output levels \
calculation cost per unit
identify which output a business should operate