Buisness growth Flashcards
Topics 48-51
What is economies of scale?
This is the process where an increase in the level of output will typically lead to a decrease in uni costs.
What is the law of diminishing returns?
The law of diminishing returns is where a rise in output will also result in a rise in costs.
What is internal economies of scale?
Benefits of growth that arise within the firm.
What is purchasing and marketing economies?
This is where buying components and raw materials can be cheaper when buying in bulk.
What is technical economies?
This arises when larger plants are often more efficient. Capital costs and running costs do not rise in proportion to their size.
What is specialisation and managerial economies?
This is where growth may allow a business to employ specialised managers, which increase efficiency and average costs.
What is financial economies?
This is where larger firms have more choice when looking to raise finance. They may find it easier to get a loan, persuade investors or even be able to sell shares on the stock market.
What is risk-bearing economies?
This is where as a firm grows, it may diversify to reduce risk. This can reduce the businesses chance of failure and hardship.
What is external economies of scale?
External economies of scale are reductions in cost which any business in an industry may enjoy as the industry grows.
Give some examples of external economies of scale?
This is reductions in costs which any business in the industry may enjoy as the industry grows.
How can ancillary and commercial services be economies of scale?
This is where established industries attract smaller firms trying to serve its needs. This means a wide range of commercial support can be offered, such as marketing, insurance, specialist banking, maintenance, cleaning etc. which may be cheaper.
How can cooperation be economies of scale?
Firms in the same industry are more likely to co-operate if they are in the same region. Might join forces to fund a R&D project, or publish an industry journal / newsletter so that information can be shared.
How can disintegration be economies of scale?
This occurs when production is broken up so that more specialisation can take place. When an industry is concentrated in one area, firms might specialise in one component and then transport it to a main assembly line.
What is the principle of increased dimensions?
The principle of increased dimensions is the same as technical economies - where larger plants are more efficient and cheaper.
What is being productively efficient?
A business is said to be productively efficient when average costs cannot be reduced through any further expansion.
A _________ business may be able to charge higher ______ if __________ in the market is ______. In the absence of ______, customers are forced to pay higher prices. Lack of __________ _________ also leads to less ____________, as dominant firms do not need to meet the costs of risky _________.
dominant
prices
competition
limited
choice
competitive pressure
innovation
risky
What effect does having a large market power over your suppliers have?
A business may be able to drive down prices if they buy large quantities from reletively small suppliers, due to the suppliers reliance on them.
What are some things that greater brand recodnition allows a buisness to do?
1= Charge higher prices
2= Differentiate the product
3= Create customer loyalty
4= Develop an image
5= Launch new products easier
What is diseconomies of scale?
This is where a business expands the scale of operations beyond the minimum efficient scale, leading to average costs rising as output rises.
Give some examples of internal diesconomies of scale.
1= Communication problems
2= Coordination problems
3= Cash flow problems
4= Motivation problems
Give some examples of external diesconomies of scale.
1= Overcrowding of industrial areas
2= Cost of land, labour, services and materials
3= Firms competing for a limited amount of supply
What is a merger?
Mergers are where two or more companies join together and operate as one. Usually conducted with the agreement of both businesses. Generally ‘friendly’.
What is a takeover?
Takeovers, also known as acquisitions, occurs when one business buys another. Public limited companies can be traded openly and anyone can buy them, so if another company buys 51% of the shares, they can be acquired.
What are some reasons for mergers and takeovers?
1= Synergies
2= Cheap expansion
3= Defensive reasons
4= Foreign expansion
5= Economies of scale
6= Asset strippers
