Business Growth

Question 1

Why do firms grow?

Answer 1

• economies of scale
• to gain monopoly power
• for greater security

Question 2

Why do firms grow (economies of scale)

Answer 2

By growing, a firm will be able to experience ​economies of scale which helps them to decrease their costs of production. They will be able to sell more goods and make more revenue​. This will help a firm to make a ​larger profit​: and many firms are motivated by profit.

Question 3

Why do some firms grow? (Monopoly power)

Answer 3

A larger firm will hold a greater share of their market. This will give them the ability to influence prices and ​restrict the ability of other firms to enter the market, helping them to make profits in the long run. Monopoly power often means firms have monopsony power​, and so will be able to reduce their costs by driving down the prices of their raw materials.

Question 4

What is monopsony power?

Answer 4

Monopsony occurs when there is a dominant buyer/employer in a market so have buying power. This gives them price/wage setting power in the industry

Question 5

Why do firms grow? (Security)

Answer 5

more security as will be able to ​build up assets and cash ​which can be used in financial difficulties.
Also likely to sell bigger range of goods in more than one local/national market so less affected by change to products or places.