Chapter 5 (Growth and evolution)

Question 1

Acquisition

Answer 1

EXTERNAL GROWTH METHOD: buying controlling interest with permission

Question 2

Average cost (AC) of production

Answer 2

Cost per unit of output

Question 3

Backward vertical integration

Answer 3

Merging with a business involved in an early stage in the chain of production

Question 4

Conglomerate

Answer 4

A business that provides a range of products and operates in different industries

Question 5

Demerger

Answer 5

Separating a business into different businesses due to conflict

Question 6

Diseconomies of scale

Answer 6

When a business becomes too large and out of control which increases AC of production

Question 7

Economies of scale

Answer 7

When a business grows in size and becomes more efficient which decreases AC of production

Question 8

External diseconomies of scale

Answer 8

Diseconomies of scale that occurs due to factors out of a business’s control

Question 9

External economies of scale

Answer 9

Economies of scale that occurs due to factors out of a business’s control

Question 10

Financial economies of scale

Answer 10

INTERNAL ECONOMIES OF SCALE: cost savings due to banks charging low interest because the large business shows less risk

Question 11

Forward vertical integration

Answer 11

Merging with a business involved in a latter stage in the chain of production

Question 12

Franchising

Answer 12

EXTERNAL GROWTH METHOD: when a franchisor agrees to let other businesses to use their business methods in return for a fee

Question 13

Horizontal integration

Answer 13

Merging with businesses in the same industry (competitors)

Question 14

Internal diseconomies of scale

Answer 14

Diseconomies of scale that occurs due to factors within the company

Question 15

Internal economies of scale

Answer 15

Economies of scale that occurs due to factors within the company

Question 16

Internal growth (organic growth)

Answer 16

When a business grows by using its own capabilities

Question 17

Joint venture

Answer 17

EXTERNAL GROWTH METHOD: when businesses come together to work on a project and create a new legal business entity

Question 18

Lateral integration

Answer 18

Merging with businesses in the same industry (not competitors)

Question 19

Managerial economies of scale

Answer 19

INTERNAL ECONOMIES OF SCALE: cost savings due to hiring specialist managers

Question 20

Marketing economies of scale

Answer 20

INTERNAL ECONOMIES OF SCALE: cost savings due to spending a lot on marketing (more customers will buy)

Question 21

Merger

Answer 21

EXTERNAL GROWTH METHOD: integrating with other businesses (loses independent identity)

Question 22

Optimal level of output

Answer 22

The most efficient scale of operation (experiencing economies of scale but not diseconomies of scale)

Question 23

Purchaser

Answer 23

The buyer in an acquisition

Question 24

Purchasing economies of scale

Answer 24

INTERNAL ECONOMIES OF SCALE: cost savings due to buying in bulk

Question 25

Risk bearing economies of scale

Answer 25

INTERNAL ECONOMIES OF SCALE: cost savings due to being able to bear greater risks (large product portfolio, spread of risks)

Question 26

Specialization economies of scale

Answer 26

INTERNAL ECONOMIES OF SCALE: cost savings due to hiring specialized workers

Question 27

Strategic alliances

Answer 27

EXTERNAL GROWTH METHOD: when businesses come together but don’t create a new legal business entity

Question 28

Synergy

Answer 28

The combined powers of multiple businesses that create larger output and efficiency

Question 29

Hostile takeover

Answer 29

EXTERNAL GROWTH METHOD: when a business buys controlling interest without permission

Question 30

Target company

Answer 30

The bought in an acquisition

Question 31

Technical economies of scale

Answer 31

INTERNAL ECONOMIES OF SCALE: cost savings due to specialized and large-scale machinery