3.2.1 Growth 📈

Question 1

What is the first objective of growth?

Answer 1

To achieve economies of scale

production is less expensive

average cost will decrease - increase in profit margins-

reduce the price of the products and services

Question 2

Why would a business want to grow?

Answer 2

Increase revenue and sales

increase market share

increase profit and profitability

increase brand recognition

Question 3

What is economies of scale

Answer 3

As output increases unit cost falls

Question 4

What is internal economies of scale?

Answer 4

Increased output of the business itself 

Question 5

What is external economies of scale?

Answer 5

Occurs within an industry

Question 6

What are the six types of internal economies of scale?

Answer 6

Bulk buying

technological

Specialisation

financial

marketing

Risk Bearing

Question 7

What happens as a business grows ? ( Bulk buying)

What happens as the order value increases?

Answer 7

Need to order a larger quantities

Business obtains more bargaining power with suppliers

Question 8

What is decreased in bulk buying? Allowing them to ?

Answer 8

Variable costs of production

transactional costs 

Obtain discounts and lower prices of raw material

Question 9

What businesses with larger scale production use more of ? (technical E of S 

What may this include ? Leading to ?

Answer 9

advanced machinery more efficiently -

include more mass production techniques

More fixed Costs spread over higher levels of output

Question 10

What is specialisation a greater potential for?

What may happen in small firms ? 

Answer 10

Manages to specialise in particular tasks 

Small firms - lots of decisions beat but may have No knowledge 

Quality in Decision is better in logical

Question 11

What is it hard for small business to attain ? 
What do they have to develop?

How about large firms ? Easier than to?

Financial economies of scale

Answer 11

Finance due to high cost 💲- Perceived as risker than larger businesses

Good track record

For large firms is easier to find potential lenders - obtain more money with lower interest rate

Question 12

Internal marketing E of S

What happens if the business gets larger? what can they spread and cut ?

Answer 12

Able to spread costs of marketing over a wide range of products-

cutting average marketing cost per unit

Question 13

How do bigger companies spread their risks ? Risk bearing

Answer 13

Investing in more products and markets
diversification

Question 14

What are external E of S associated with?

Answer 14

Particular geographical areas- Access to research and specialist suppliers close by

expertise is shared Pool of skilled labour to choose from 

Access to research and development facilities

Question 15

What is the second objective of growth ? 

Answer 15

Increase market share and brand recognition

Question 16

What is the third objective of Growth ?

Answer 16

increased market power over customers and suppliers

Question 17

What does an increase market power of the customers and suppliers Reduce?

Answer 17

Reduces the power of suppliers and customers

Porters 5 forces

Bargaining powers of supplies -

Limits powers of supplies - by looking for new supplies

Backwards , vertical integration , merge or takeover the supplier 

Bargaining power- expensive for customers to switch

Question 18

What is the fourth objective of business growth ?

Answer 18

L increased profitability

Question 19

What is under profit Vs. Profitability ?

Answer 19

Profit-
three types
absolute Number- a figure
Found In FPI
profit - TR - TC

Profitability- 

It’s a relative number- % Relate to input required to generate

Shows how efficiently the business is using its investments

ROI

Question 20

how can both profit and profitability be improved ?

Answer 20

By reducing cost and increasing revenue

Question 21

What are the problems arising from growth?

Answer 21

Diseconomies of scale

Question 22

What is diseconomies of scale?

Answer 22

As output rises average unit cost rises

Question 23

What may happen as the business grows?

Answer 23

May expand the production beyond the minimum efficient scale 

Question 24

What are the three internal diseconomies of scale?

Answer 24

Communication - Size increases of firm - ❌ face to face contact

long time for messages to get to people due to more layers

Less effective and agile

mistakes are made

wastage

increase in cost average unit cost

coordination -New staff -
need monitoring
need to employ new
managers to monitor
Increase In wages costs
increase in average unit cost

motivation-Workers may be demotivated no say in working life

leads to a sense of powerlessness

increases absenteeism

reduces productivity

Lowers output per worker - no cash flow coming to pay wages for machinery

increase unit cost

Question 25

What is the third problem arising from growth?

What may this lead to?

Answer 25

Overtrading- when the business accept more orders that they can cope with

Can lead to Cash flow problems

Eg if accept an order that won’t be paid for three months they’ll be no revenue coming in

can’t fulfil another large order or buy stock due to lack of cash flow

Question 26

What are the four factors that may arise in external economies of scale

Answer 26

Labour -Training cost is reduced if - gained skills from local schools

commercial services-Specialist skills

disintegration - Production is broken up some more specialisation can take place - greater force

Corporation-If they are concentrated in the same reason more likely to cooperate join forces and fund research and development for the industry