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BUSINESS UNIT 3 Part 1 > Ch5 P2 > Flashcards

Ch5 P2 Flashcards

1
Q

What are diseconomies of scale?

A

Rising long-run average costs as a business expands beyond its minimum efficient scale.

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2
Q

What are economies of scale?

A

The reduction in average cost per unit as the business grows in size.

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3
Q

What are external economies of scale?

A

The cost reductions available to all businesses as the industry grows.

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4
Q

What is meant by ‘inability’ in economics?

A

The physical inability of economic appropriates of running a machine or some other piece of equipment at below its optimal operational capacity.

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5
Q

What is inorganic growth?

A

A business growth strategy that involves two or more businesses joining together to form one large business.

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6
Q

What are internal economies of scale?

A

The cost reductions experienced by one business as it grows.

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7
Q

What is minimum efficient scale?

A

The output that minimizes long-run average costs.

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8
Q

What is organic growth?

A

A business growth strategy that includes the business growing gradually using its own resources.

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9
Q

What is a sole trader?

A

A business organization which has a sole trader.

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10
Q

What is a venture capitalist?

A

Provider of funds for small or medium-sized companies that may be considered too risky to other investors.

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11
Q

What does it mean when a business is growing?

A

It means more revenue, profit is being generated, and the business has more assets and uses more resources.

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12
Q

What are the benefits of growing a business?

A
  • Higher revenue
  • Increased market power
  • Economies of scale
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13
Q

What is the relationship between large businesses and market share?

A

Larger businesses generally have higher market share.

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14
Q

What is the significance of economies of scale?

A

It allows businesses to lower average costs as output increases.

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15
Q

What are internal economies of scale?

A

Benefits of growth within a firm that lead to productive efficiency.

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16
Q

What are purchasing and marketing economies?

A
  • Better deals when buying components
  • Selling administration costs do not rise proportionally with sales size
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17
Q

What are technical economies?

A

The capital and running costs of plants do not rise in proportion to their size.

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18
Q

What is the law of averages in production?

A

Refers to the ability to switch to mass production as output increases.

19
Q

What are managerial economies?

A

Employing skilled workers can improve efficiency and reduce mistakes.

20
Q

What are financial economies?

A

Ability to raise extra funds, sell shares, and borrow at lower interest rates.

21
Q

What are external economies of scale?

A

Opportunities for businesses to diversify product range and conduct research and development as they grow.

22
Q

Fill in the blank: The minimum effective scale is reached when output _______.

A

[reaches a level where average costs cannot be reduced further]

23
Q

True or False: Only large businesses can take advantage of economies of scale.

A

True

24
Q

What happens to a business’s market power as it grows?

A

It increases, making the business more dominant.

25
Q

What is the effect of increased market power on rivals?

A

Rivals are left with a smaller market share.

26
Q

What can a dominant business do regarding customer pricing?

A

Charge higher prices due to limited competition.

27
Q

How does a dominant business affect customer choices?

A

Customers may be forced to pay higher prices due to less choice.

28
Q

What is a consequence of a dominant business not having to innovate?

A

It may not meet the costs of innovation.

29
Q

How can a business exert pressure on suppliers?

A

By forcing down the cost of materials through large quantity purchases.

30
Q

What happens to market share as a business grows?

A

It is likely to grow as well.

31
Q

What are some advantages of increased market share?

A
  • Greater brand recognition
  • Brand awareness
  • Ability to charge higher prices
  • Creation of customer loyalty
  • Development of a strong image
  • Attraction of media attention
32
Q

Fill in the blank: A dominant business can create _______ among its customers.

A

customer loyalty

33
Q

True or False: A business with increased market power is less likely to attract media attention.

A

False

34
Q

What is defined as a benefit of growth?

A

Profitability

Profitability refers to the ability of a company to generate profit relative to its revenue, expenses, and investments.

35
Q

What is the relationship between profits and retained earnings?

A

Higher the profits, higher the returns

Retained earnings are the portion of net income that is retained by the company rather than distributed as dividends.

36
Q

What does ‘organic growth’ refer to?

A

Internal growth through selling more products

Organic growth is achieved by increasing sales through existing operations, without mergers or acquisitions.

37
Q

What does ‘inorganic growth’ involve?

A

Mergers and acquisitions

Inorganic growth occurs when a company increases its market share and resources by acquiring or merging with other companies.

38
Q

Fill in the blank: Organic growth is also referred to as ______.

A

Internal growth

39
Q

Fill in the blank: Inorganic growth can involve ______ and ______.

A

Mergers and takeovers

40
Q

What are some characteristics of organic growth?

A
  • Uses its own resources
  • Takes more time
  • Less risky
  • More knowledge acquired

Organic growth often allows a company to build on its existing capabilities and customer relationships.

41
Q

What are some characteristics of inorganic growth?

A
  • Involves more branches
  • Merging and takeovers
  • Gradually grows
  • More risky

Inorganic growth can lead to rapid expansion, but it often comes with significant risks and challenges.

42
Q

True or False: Organic growth is generally considered less risky than inorganic growth.

A

True

43
Q

True or False: Inorganic growth does not require the use of external resources.

A

False

BUSINESS UNIT 3 Part 1 (9 decks)

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