chapter 3.3

Question 1

ways that business can be measured

Answer 1

number of people employed
value of output
value of sales
value of capital employed

Question 2

benefit and limitation of number of people employed

Answer 2

benefit: this method is easy to calculate and compare with other business
limitation: some firms use production methods which employ very few people but produce high output levels

Question 3

benefit and limitation of value of output

Answer 3

benefit: calculating the value of output is a common way of comparing business size in the same industry
limitation: a high level of output does not mean that a business is large when using the other method of measurement

Question 4

benefit and limitation of value of sales

Answer 4

benefits: this is often used when comparing the size of retailing businesses especially retailers seeing similar products
limitations: it could be misleading to use this measure when comparing the size of businesses that sell very different products

Question 5

benefit and limitation of value of capital employed

Answer 5

benefits: the means the total value of capital invested in to the business
limitation: a company employing many workers may use labour intensive methods of production

Question 6

benefits of expanding businesses

Answer 6

higher profits
more status and prestige for the owners
lower average costs
larger market share

Question 7

business can expand in 2 ways

Answer 7

internal growth: by expanding

external growth: by merging or taking over another business

Question 8

types of external growth

Answer 8

horizontal integration, vertical integration and conglomerate integration

Question 9

horizontal integration

Answer 9

when a businesses merges or takeover a business in the same industry at the same stage of production.

Question 10

vertical integration

Answer 10

when a businesses merges or takeover a business in the same industry but different stage of production.

Question 11

conglomerate integration

Answer 11

when a business merges or takeover a business in a different industry.

Question 12

Benefits of integration –Horizontal Integration

Answer 12

1. The merger reduced the number of competitors in the industry
2. There are opportunities for economies of scale.
3. The combined business will have a bigger market share of the total market than either business before the integration.

Question 13

Benefits of integration –Forward Vertical Integration

Answer 13

1. The merger gives an assured outlet for its product.
2. The profit margin of the supplier can be absorbed by the expanded business.
3. The retailer could be prevented from selling competing products.
4. Information about consumer needs and preferences can now be obtained directly by the manufacturer.

Question 14

Benefits of integration –Backward Vertical Integration

Answer 14

1. The merger gives an assured supply of important components.
2. The profit margin made by the retailer us absorbed by the expanded businesses
3. The supplier can be prevented from supplying other manufacturer’s.
4. Costs of components and supplies for the manufacturer can be controlled