3.2.1 Growth

Question 1

What r the objectives of growth?

Answer 1

-Achieve economies of scale
-increased market power
-increased ms + brand recognition
-increased profitability

Question 2

What are some problems that rise from growth?

Answer 2

-diseconomies of scale
-internal communication
-overtrading

Question 3

diseconomies of scale

Answer 3

-when a company grows so large that the costs per unit increase
-difficult to manage due to company growth (supervision)ntern

Question 4

Internal communication

Answer 4

big business = longer communication = long decision making = cant keep up with trends

Question 5

overtrading

Answer 5

-rapid growth (neg cash flow) so cant pay for new machinery/worker = lacks efficiency

Question 6

External economies types

Answer 6

-Geographic cluster
-transport link economies
-skilled labour economies
-favourable legislation economies

Question 7

Internal economies types

Answer 7

-financial economies
-managerial economies
-marketing economies
-technical economies
-purchasing economies
-risk bearing economies

Question 8

Geographic cluster

Answer 8

As an industry grows, ancillary farms will move closer to major manufactures to cut costs + generate more business
External

Question 9

Transport link economies

Answer 9

Improved transport links develop around growing industries to help get people to work + improve transport logistics
External

Question 10

Skilled labour economies

Answer 10

An increase in skilled labour can lower the cost of skilled labour, the larger the geographic cluster the larger the pool of skilled labour which leads to business gaining more specialised workers
External

Question 11

Favourable legislation economies

Answer 11

Often generates significant reductions in AC as governments support certain industries to achieve their wider objectives = more investment from business = grow quicker
External

Question 12

Financial economies

Answer 12

Interest rates on loans r reduced as larger firms r more likely to repay them back as less risky
Internal

Question 13

Managerial economies

Answer 13

Occurs when large firms can employ specialist managers who r efficient at certain tasks which lowered average cost (AC)
Internal

Question 14

Marketing economies

Answer 14

Large firms spread the cost of advertising over a large no of sales = this reduces the ac =customer awareness
Internal

Question 15

Technical economies

Answer 15

Occur as a firm can use its machinery at a higher level of cap due to increased output thereby spreading the cost of machinery over more units = lower ac
Internal

Question 16

Purchasing economies

Answer 16

Occurs wen large firms buy raw materials in greater volume
=receive a bulk purchase discount lowers ac
Internal

Question 17

Risk bearing economies

Answer 17

Occurs when firm can spread risk of failure by increasing its numbers of products i.e greater product diversification - less faliuer lowers ac =business is saving money
Internal

Question 18

Economies of scale

Answer 18

Occur when unit costs fall as business expands