growth

Question 1

economies of scale

Answer 1

reduction in average costs as output increases

Question 2

diseconomies of scale

Answer 2

rising long term average costs as a business expands

Question 3

internal economies of scale

Answer 3

purchasing: buying in bulk

financial: larger firms are more likely to get access to bank loans or investment

managerial: can ensure efficiency so less waste and reduction in average cost

technical: investment in capital can make businesses more productive

risk bearing: diversifying can give competitive edge and reduce risk

Question 4

define internal economies of scale

Answer 4

cost reductions enjoyed by a single business as it grows

Question 5

define external economies of scale

Answer 5

cost reductions available to all businesses as the industry grows

Question 6

external economies of scale

Answer 6

labour: build up of labour force equipped with good skills

co-operation: firms in the industry can work together to fund a research and development centre for the industry

disintergration: production is broken up so specialisation can take place

Question 7

increased market power

Answer 7

can dominate:

customers: dominant business can charge higher prices if the competition in the market is limited, consumers are limited for choice so are forced to pay high prices

suppliers: dominant markets can force the costs of materials down if they buy in large quantities

Question 8

result of increased market share and brand recognition

Answer 8

• premium pricing
• brand loyalty
• penetration pricing
• launch products easier

Question 9

overtrading

problems arising from growth

Answer 9

when a business grows too fast they try to fund a large volume of businesses without sufficient resources, as a result, it runs out of cash

Question 10

what causes overtrading?

Answer 10

• not enough capital (resources/machinery)
• offers too much trade credit to customers
• slim profit margins

Question 11

internal diseconomies of scale

problems arising from growth

Answer 11

• communication and co-ordination lost
• motivation of workers lost as they become a minor part of the total workforce
• the demand for co-ordination as the business is growing is large

Question 12

external diseconomies of scale

problems arising from growth

Answer 12

may occur from overcrowding, the price of land, labour, services and materials might rise as firms compete for a limited amount

congestion=inefficiency as travelling workers and deliveries are delayed