business growth + competitive advantage

Question 1

What are the 2 types of economies of scale?

Answer 1

Internal and external.

Question 2

Define both types of economies of scale.

Answer 2

Internal - occurs when the firm grows larger and average cost of production falls
External - occurs within the industry

Question 3

What are the different types of internal economies of scale?

Answer 3

• Risk bearing
• Financial
• Managerial
• Technological
• Marketing
• Purchasing

Question 4

What mnemonic is there for remembering the types of internal economies of scale?

Answer 4

Really Fun Mums Try Making Pies.

Question 5

Describe financial economies of scale.

Answer 5

When a firm grows larger, it is seen as less risky and so its eligible for larger loans from banks for lower interest rates.

Question 6

Describe purchasing economies of scale.

Answer 6

As output increases, firms can bulk-buy, meaning the cost per unit of output is reduced.

Question 7

Give one way diseconomies of scale occur.

Answer 7

As the firm expands, some workers may feel alienated from their more important counterparts, and therefore demotivated to work hard.

Question 8

What is the lowest point on the LRAC curve called?

Answer 8

The minimum efficient scale.

Question 9

How do large firms have dominance over markets?

Answer 9

They have the ability to set prices and discourage other firms from entering the market.

Question 10

When does a firm have a competitive advantage?

Answer 10

When its goods/services are deemed better quality than its competitors by customers.

Question 11

Why would firms try to ensure their employees are well looked after?

Answer 11

To boost employees’ motivation, which in turn increases productivity and output.

Question 12

What is inorganic growth?

Answer 12

This is when a business expands by merging and acquiring other firms.

Question 13

What is organic growth?

Answer 13

This is when a business grows by increasing output, expanding their customer base and developing new products.

Question 14

What are the disadvantages of organic growth compared to inorganic growth?

Answer 14

It takes time to grow this way, and in this time other firms may gain a competitive advantage over the market, which may become a problem for shareholders.

Question 15

Define vertical integration.

Answer 15

This occurs when a firm merges with our acquires another firm in the same industry but different step in the supply chain.

Question 16

Define horizontal integration.

Answer 16

Occurs when a firm merges with or acquires another firm in the same industry and same stage of production.

Question 17

How is horizontal integration beneficial for firms?

Answer 17

It gives them a competitive edge over the market as their market share increases, leading to increased output.

Question 18

What is conglomerate integration?

Answer 18

The joining of two firms with no common connection.

Question 19

Recall the definition of R&D.

Answer 19

Research and Development is investment in research with the intention of improving goods, introducing new ones and improving methods of production.

Question 20

How can R&D increase market power?

Answer 20

It differentiates products from their competitors, making them more unique and thus helps increase brand loyalty.

Question 21

What are the different stages of the product life cycle?

Answer 21

Development, growth, maturity, decline.

Question 22

How have price comparison sites been beneficial to consumers?

Answer 22

They have helped reduce information gaps by increasing the quantity of knowledge consumers have about a good or service.

Question 23

What is micro-marketing?

Answer 23

This is where advertising is focused on a small group of consumers, rather than the market as a whole.

Question 24

What is the long tail theory?

Answer 24

The long tail theory suggests consumers get a wider choice when it comes to online retailing.

Question 25

Give 2 ways online stores have an advantage over their brick-and-mortar counterparts.

Answer 25

• Online businesses are not restricted to physical space, so can target customers worldwide
• Online stores have lower costs, so can charge lower prices and therefore gain a larger portion of the market share.

Question 26

Why can most small firms not benefit from economies of scale?

Answer 26

Since they do not produce enough output to lower their average costs.

Question 27

How could small firms act as monopolies?

Answer 27

They can create a local, more personal service and a niche market.